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For A Stateless Society
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CHASE RACHELS
 DEDICATION
Copyright © 2015 Christopher Chase Rachels
All rights reserved.
ISBN-13: 978-1512117271
ISBN-10: 1512117277
This work is dedicated to my son, Micha Rachels. May he grow up with a
Cover Photo by DAVID ILIFF. License: CC-BY-SA 3.0 free spirit, critical mind, and warm heart.
 ACKNOWLEDGEMENTS
CONTENTS

I would like to first and foremost thank my wife, Michelle Ferris, Foreword …6
for standing by my side as an active participant in the fight against tyranny.
Her loving encouragement and support enabled me to see this project to its Introduction … 11
end. Stephan Kinsella’s mentorship was likewise invaluable in its relation to
the precision and rigor of this book. My editor, Mattheus von Guttenberg, 0. Epistemology and Praxeology … 19
also deserves recognition for his professional assistance in editing this work
and verifying the accuracy of its content. I would like to express my 1. Libertarianism … 45
gratitude for Will Porter, who was gracious enough to contribute one of his
brilliant essays (Chapter 0: Epistemology and Praxeology). I would also like 2. Property … 66
to give thanks to the following people who provided their support in a
variety of ways, though bear in mind this list is by no means exhaustive or 3. Contract … 78
in any particular order: Luis F. Duran-Aparicio, Blake Williams, Jason
Bassler, Justin Stout, Chris Calton, Gary Simon, Mike Martelli, Joel 4. Money and Banking … 90
Richardson, Walter Block, Jeff Berwick, and many more!
5. Monopolies and Cartels … 122

6. Insurance … 131

7. Health Care … 139

8. Law and Order … 147

9. Defense and Security … 172

10. Transportation Networks … 185

11. Education … 195

12. Poverty … 211

13. Environmentalism … 234

14. The Corporation … 259

15. Getting There … 278

Resources … 286
 FOREWORD

grew the main sort of libertarianism of the

last fifty years. It was based on a principle
articulated by Murray Rothbard in the
1970s this way: No one may initiate the use
Foreword or threat of physical violence against the
person or property of anyone else. The
idea had roots in John Locke, America’s
founders, and more immediately Ayn
MODERN LIBERTARIAN THEORY is only about five decades old. Rand, but it was Rothbard’s formulation
The ideas that have influenced our greatest thinkers can be traced back that became standard. It became known as
centuries, of course,1 to luminaries such as Hugo Grotius, John Locke, the non-aggression principle or—since
Thomas Paine, Herbert Spencer, David Hume, and John Stuart Mill, and to Rothbard took it as the starting point of
more recent and largely even more radical thinkers such as Gustave de political theory and not the conclusion of
Molinari, Benjamin Tucker, Lysander Spooner, Bertrand de Jouvenel, Franz philosophical justification—the non-
Oppenheimer, and Albert Jay Nock.2 aggression axiom. In the late twentieth
The beginnings of the modern movement can be detected in the century, anyone who accepted this
works of the “three furies of libertarianism,” as Brian Doherty calls them: principle could call himself, or could find
Rose Wilder Lane, Ayn Rand, and Isabel Patterson, whose respective books himself called, a libertarian, even if he
The Discovery of Freedom, The Fountainhead, and The God of the Machine were all disagreed with Rothbard’s own insistence
published, rather remarkably, in the same year: 1943.3 But in its more that rights are best protected when there is
modern form, libertarianism originated in the 1960s and 1970s from no government at all.4
thinkers based primarily in the United States, notably Ayn Rand and Murray
Rothbard. Other significant influences on the nascent libertarian movement We can date the dawn of today’s libertarianism to the works of
include Ludwig von Mises, author of Liberalism (1927) and Human Action Rand and Rothbard: to Rand’s Atlas Shrugged (1957); and, especially, to
(1949, with a predecessor version published in German in 1940); Nobel Rothbard’s Man, Economy, and State (1962), Power and Market (1970), and For
laureate F.A. von Hayek, author of The Road to Serfdom (1944); Leonard A New Liberty (1973), plus his journal The Libertarian Forum (1969–1984). For
Read, head of the Foundation for Economic Education (founded 1946); A New Liberty stands today as a brilliant, and early, bold statement of the
and Nobel laureate Milton Friedman, author of the influential Capitalism and radical libertarian vision. By the mid-60s, the modern libertarian movement
Freedom (1962). was coalescing, primarily behind the non-initiation of force principle and
The most prominent and influential of modern libertarian figures, the “radical capitalism” of Ayn Rand, and Rothbard’s systematic libertarian
however, were the aforementioned novelist-philosopher Ayn Rand, the corpus based upon the non-aggression principle or axiom. It is no surprise
founder of “Objectivism” and a “radical for capitalism,” and Murray that the Libertarian Party was founded in 1971, as these ideas, and the
Rothbard, the Mises-influenced libertarian anarcho-capitalist economist and liberty movement, were gaining steam.
political theorist. Rothbard’s seminal role is widely recognized, even by In the ensuing decades many other influential works appeared
non-Rothbardians. Objectivist John McCaskey, for example, has observed, expounding on the libertarian idea, such as Linda and Morris Tannehill, The
that out of the debates in the mid-1900s about what rights citizens ought to Market for Liberty (1970), John Hospers, Libertarianism: A Political Philosophy
have, for Tomorrow (1971), David Friedman, The Machinery of Freedom (1973), Robert
Nozick, Anarchy, State, and Utopia (1974), Henri Lepage, Tomorrow, Capitalism
(1978), Samuel Edward Konkin III, New Libertarian Manifesto (1980), Jan
1 For more on this, see Brian Doherty, Radicals for Capitalism: A Freewheeling
History of the Modern American Libertarian Movement (New York: Public Affairs, 4 John P. McCaskey, “New Libertarians: New Promoters of a Welfare State”
2007) and David Boaz, The Libertarian Reader: Classic and Contemporary (published as a blog post on [Link], April 14, 2014).
Readings from Lao-tzu to Milton Friedman (New York: Free Press, 1997). [Link] See
2 See Boaz, The Libertarian Reader. also, Wendy McElroy, “Murray N. Rothbard: Mr. Libertarian,” (published on
3 See Doherty, Radicals for Capitalism. [Link], July 6, 2000).
6 7
 A SPONTANEOUS ORDER FOREWORD

Narveson, The Libertarian Idea (1988), Anthony de Jasay, Choice, Contract, action.
Consent: A Restatement of Liberalism (1991), Richard Epstein, Simple Rules for a Thus, Rothbard, influenced by and building on the insights of
Complex World (1995), Charles Murray, What It Means to Be a Libertarian: A earlier and contemporary thinkers, such such as Mises and Rand, first
Personal Interpretation (1996), David Boaz, Libertarianism: A Primer (1998), presented a systematic vision of modern, radical libertarianism: anti-state,
Randy E. Barnett, The Structure of Liberty (1998), and, more recently, Jeffrey pro-market, Austrian. This enabled Rothbard to adumbrate a broad
A. Miron’s Libertarianism, From A to Z (2010), Jacob Huebert’s Libertarianism framework for liberty, from property to contract to punishment theory.
Today (2010), Gary Chartier’s The Conscience of an Anarchist (2011), and Rothbard’s analysis extends also to, or draws on, other disciplines as
Gerard Casey’s Libertarian Anarchism (2012). necessary, such as epistemology, history, the nature of the sciences, and the
These and other works expounding on the ideas of liberty have like.7
their own strengths and merits, and many of them have their own Additional advances to the essentially Rothbardian perspective on
deficiencies and idiosyncrasies as well. Some, for example, are statements social theory have been made over the years. Hoppe, for example, a diligent
only of the author’s personal vision and do not purport to describe student of both Mises and Rothbard, has emphasized the essential role of
libertarian thought in general; some are minarchist, at best, and do not even scarcity in the need for interpersonal property norms, leading to a more
recognize anarcho-libertarianism as a type of libertarianism (Miron, for rigorous and streamlined restatement of the basic Lockean approach which
example, says “libertarianism accepts a role for government in a few, limited underlies Rothbard’s own radical libertarian system. Hoppe has also
areas: small government, not anarchy”);5 and some do not sufficiently extended Rothbardian analysis in the realm of political ethics with his
appreciate Austrian economics and its crucial role in informing political “argumentation ethics” defense of libertarian rights. Modern Hoppean-
theory. And many of the earlier works are simply dated at this point—how Rothbardians are not only pro-market and anti-state: they are pro-
could they not be, being written before the rise of the Internet (1995) or technology, anti-democracy and anti-intellectual property as well. They
even before the fall of communism (1989–91)? promote the use of the Internet, smart phones and video cameras, blogging,
As libertarian thought develops and matures, there is a continual podcasting, Youtube, social media and phyles, encryption, anonymity,
need to restate our basic principles, to search for new ways of VPNs, open source software and culture, torrents, wikileaking,
understanding and conveying our views about the nature of human society, crowdsourcing and crowdfunding, MOOCs, 3D printing and Bitcoin to
the state, conflict, cooperation, and liberty. The way forward, if we wish to network, communicate, learn, profit and spread ideas—and to counter,
spread and develop the intellectual edifice of libertarian thought, is to monitor, fight, and circumvent the state. To increasingly render the state
extend and advance the most consistent, scientific, and rigorous foundation irrelevant and to reveal it as retrograde, crude, and antiquated, not to
for libertarianism. This is, in my view, the basic vision laid out by Rothbard, mention inefficient, cold, and evil.
which relies heavily on free market economic theory, chiefly that of Thus, while there is reason to welcome all new works, thinkers and
Rothbard’s mentor Mises, and as supplemented by the work of Rothbard’s approaches that advance liberty and libertarian ideas, there remains a need
colleague and protégé Hans-Hermann Hoppe, author of A Theory of for treatments of the ideas of liberty that are explicitly anchored in anti-
Socialism and Capitalism (1989), inter alia. This type of libertarianism is distinct state, Austrian-Misesian, and systematic Rothbardian ideas. We need sound
from others in many ways. It is principled and rights-based, not utilitarian analyses and ideas, whether broad or narrow, personal or general, current or
(not to say that it is impractical; as Rand pointed out, the practical is the timeless, academic or aimed at the general reader. Chase Rachels’s A
moral);6 it is radical, anarchist, and anti-state, not minarchist; it is anti-war; it Spontaneous Order is one such work. This is a fresh approach which has all
is systematic and rigorous, not a collection of ad hoc policy points; it is the right ingredients: it is anchored in and aware of the anarcho-capitalist
realistic, sober and sophisticated about the nature of the state; and it is and Austrian economic literature and insights, rather than trying to reinvent
heavily influenced by insights of free market and Austrian economics, the wheel; it is accessible and aimed at a wide audience; it is up to date; it is
especially those of Mises and his “praxeological” understanding of human lively and the author’s passion for liberty is clearly evident throughout.
Importantly, Rachels recognizes the fundamental role that economic
5 scarcity plays in the formation of social and property norms, as Professor
Jeffrey A. Miron, Libertarianism, from A to Z. (New York: Basic Books, 2010).
6 See Randy E. Barnett, The Structure of Liberty: Justice and the Rule of Law
7 For a superb overview of the significance and scope of Rothbard’s work, and for an
(Oxford: Clarendon, 1998), arguing for a distinction between consequentialism and
utilitarianism; also idem, “Foreword: of Chickens and Eggs—The Compatibility of incisive comparison of the systematic Rothbardian approach to the dilettantish
Moral Rights and Consequentialist Analysis,” 3 Harv. J. L. Publc. Pol’y 611 (1989), “razzle-dazzle” of Nozick, see Hans-Hermann Hoppe, “Introduction,” in Murray N.
available at [Link]. Rothbard, The Ethics of Liberty (2nd ed., 1998)
8 9
 A SPONTANEOUS ORDER

Hoppe has repeatedly emphasized. And while A Spontaneous Order is not

some dense, thousand page musty tome, it is wide-ranging in scope,
covering the major issues of concern to advocates of liberty: from the
basics, such as epistemology, justifications for libertarian norms, and
foundational issues like property and the theory of contract, which is
informed by Rothbard’s underappreciated and revolutionary title-transfer Introduction
theory of contract. This focus on essentials and on clarity of expression
enables Rachels to tackle several important applications, many of which
receive short shrift in other works—such as corporate limited liability,
intellectual property law, money and banking, monopolies and cartels, and a SCARCITY IS AN immutable characteristic of the physical realm. As
host of other practical issues and applications such as health care, defense, humans, we require the consumption of various scarce (aka economic)
roads, environmentalism, education, and others. The book concludes, goods for our sustenance and pleasure. Fortunately, the digital age has
appropriately, with a stirring and inspirational final chapter, “Getting produced a superabundance of non-scarce goods for our pleasure.
There,” which is full of practical and principled insights about what is to be However, as marvelous as this advent is, it cannot wean us entirely from
done to achieve a freer society. To “Get there,” we will need the ideas of our dependence on economic goods. The enjoyment of many non-scarce
liberty to be explicated and spread, to be learned, practiced, and taught. A goods may only be enabled by the use of those goods which are scarce, i.e.,
Spontaneous Order admirably contributes to this mission. by servers, microchips, monitors, phones, cell phone towers, satellites, and
at the very least the standing room for this equipment, infrastructure, and
personnel, etc.
Stephan Kinsella The problem of social order, then, stems from mutually exclusive
Houston, Texas desires for how to employ such scarce goods. Being scarce, there are a
SEPTEMBER 2014 limited number of these goods, and the desire for them exceeds their
availability. Thus, over time, there have been innumerable attempts to solve
this dilemma through the formulation of various property norms and the
erection of various States to create, interpret, and enforce them. Property
norms themselves simply refer to the criteria used to determine who has the
rightful authority to employ a given scarce good. When conflicts inevitably
rise regarding the use of scarce goods, it is such property norms that serve
as the philosophical and legal basis for arbitrating between the conflicting
parties. Thus, the efficacy of a norm is measured by the degree to which, if
followed, it is able to mitigate or eliminate interpersonal conflict.
The thesis put forth regards the Private Property norm as the one
best suited for such conflict avoidance and, hence, the optimal production
of wealth. This norm will be extended to its fullest to show how it may also
be applied towards those functions traditionally assumed by the State.
Simultaneously, it will be revealed how the State owes its very existence to
the continued violation of the Private Property norm, and must therefore
be dissolved for both practical and ethical reasons.

10 11
 A SPONTANEOUS ORDER INTRODUCTION

What is the Private Property Norm? Contrary to the frequently heard claim
that the institution of private property is
only a convention, it must be categorically
The Private Property norm first and foremost states that every stated: a convention serves a purpose, and
person is the exclusive owner of his/her own body. This is referred to as it is something to which an alternative
the principle of self-ownership. This entails respecting another's agency by exists. The Latin alphabet, for instance,
not initiating the uninvited use of physical force against him. The principle serves the purpose of written
of self-ownership allows for any action that respects the autonomy and communication and there exists an
liberty of others. For example, only Joe has the exclusive right to employ his alternative to it, the Cyrillic alphabet.
body as he sees fit, so long as such employment does not involve uninvited That is why it is referred to as a
physical interference with the bodies or external property of others. The convention.
Private Property norm permits one to acquire ownership over external
economic goods through original appropriation or voluntary exchange. To What, however, is the purpose of action
acquire property via original appropriation, one simply need be the first to norms? If no interpersonal conflict
mix his labor with an unowned good. This is commonly referred to as the existed — that is: if, due to a
first-user or homesteading rule. A careful examination of this rule should prestabilized harmony of all interests, no
reveal that it is necessarily conflict-free, as being the first user and claimant situation ever arose in which two or
implies there can be no valid competing claims over said good at the time more people want to use one and the
of its acquisition. Voluntary exchange is the second and only other means same good in incompatible ways — then
by which one may acquire rightful ownership over a good, according to the no norms would be needed. It is the
Private Property norm. This includes any voluntary transfer of title over a purpose of norms to help avoid
given good to someone else. This may take the form of a monetary sale, otherwise unavoidable conflict. A norm
barter exchange, gift, inheritance, etc. Once again, because such exchange is that generates conflict rather than
voluntary, it too is free of conflict and is therefore in accordance with the helping to avoid it is contrary to the very
purpose of norms: conflict avoidance. An important derivative of the purpose of norms. It is a dysfunctional
Private Property norm is the non-aggression principle (aka the NAP) which norm or a perversion... With regard to
states that no one may rightfully commit aggression against the persons or the purpose of conflict avoidance,
property of others. To clarify, aggression in this context and for the however, the institution of private
remainder of the book will entail the initiation of uninvited physical property is definitely not just a
interference with the persons or property of others, or threats made convention, because no alternative to it
thereof. exists. Only private (exclusive) property
Finally, what the Free Market refers to is simply the social makes it possible that all otherwise
arrangements that develop in the absence of coerced exchanges, which unavoidable conflicts can be avoided.
implies the widespread adoption of the Private Property norm. That is to And only the principle of property
say, it refers to that environment which is comprised of a myriad of acquisition through acts of original
voluntary exchanges and acts of original appropriation. In such an appropriation, performed by specific
environment, one is only able to increase his wealth through the production individuals at a specific time and
of desired goods and services, which are valued more than the sum of their location, makes it possible to avoid
individual separate components. Thus, the self interests of the individual are conflict from the beginning of mankind
beautifully harmonized with the interests of greater society. The Free onward, because only the first
Market, then, is a system which only takes for granted that humans are self appropriation of some previously
interested and that they seek to use means to achieve various ends. Hoppe unappropriated good can be conflict-free
expounds on the nature of the Private Property norm: — simply, because — per definitionem —
no one else had any previous dealings

12 13
 A SPONTANEOUS ORDER INTRODUCTION

with the good.8 The illegitimacy of the State rests on the fact that it exercises
control over resources that its agents never acquired through original
appropriation or voluntary exchange, and it does so without the consent of
What is the State? the rightful owners of said resources. This is what separates the so called
"social contract" of the State from a restaurant owner who expects a
customer to pay after he has enjoyed a meal. In the first place, the
Throughout this book, there will be innumerable references to the restaurant owner offers the good upon the customer’s specific request, and only
“State.” This should not be confused with, say, California or North then asks for payment. In distinct contrast, the State first expropriates or
Carolina. Rather, it is interchangeable with what is more commonly referred steals wealth from its citizenry in the form of taxes, and we are told this is
to as the “government.” However, using the term "government" in place of payment for its services. In the second place, the restaurant owner would
the "State" can be misleading as it insinuates that a Private Property or Free have acquired his establishment and the food that he serves through
Market Anarchist society is absent a governing presence in a more general original appropriation or voluntary exchange, and would thus have the
sense. In a Free Market Anarchist society (aka Anarcho-Capitalist or legitimate authority to dictate how it is to be run and to expect payment
Voluntaryist society), the market is the governing presence and enforceable from his customers for services rendered. The State, on the other hand,
rules and norms still exist, e.g. the NAP. In the Free Market, no one may cannot claim to own the land of an entire country, as it never homesteaded
rightfully or legally commit aggression against the persons or property of or purchased it from prior owners (at least not with funds generated
others. In distinct contrast, however, the State is that institution which has through original appropriation or voluntary exchange).
the exclusive legal right to commit aggression against others in a
geographical area. More specifically, the State is that institution which
confers upon itself the status of ultimate arbiter in all conflicts, as well as Logical and Economic Errors of the State
the exclusive privilege to create, interpret, and enforce law. In addition to these
privileges, it also retains the unique power to lay taxes on its citizens, i.e., to
make them pay for its "services" or else face fines, imprisonment, or even As normally understood, the primary role the State is charged with
death if arrest is resisted. Hoppe summarizes the defining characteristics of is to serve as the authoritative institution in the creation, interpretation, and
the State: enforcement of law and to protect the property of its citizens. However, as
noted earlier, before it can embark on any task it must first confiscate a
First, the state is an agency that exercises portion of its citizens' property without their genuine consent so that it may
a territorial monopoly of ultimate have the means to perform the aforementioned services. Thus, the means
decision making. That is, the state is the the State uses to achieve the ends of conflict mitigation and property
ultimate arbiter in every case of conflict, protection themselves generate conflict and violate the property rights of its
including conflicts involving itself. It citizens from the outset. This “logical error” associated with State
allows no appeal above and beyond operations explains the inherently destructive economic consequences of
itself. Second, the state is an agency that this arrangement. Hoppe explains:
exercises a territorial monopoly of
taxation. That is, it is an agency that First of all, among economists and
unilaterally fixes the price that private philosophers two near-universally
citizens must pay for the state's service accepted propositions exist:
as ultimate judge and enforcer of law and
order.9 Every "monopoly" is "bad" from the
viewpoint of consumers. Monopoly is
here understood in its classic meaning as
an exclusive privilege granted to a single
8 Hans-Hermann Hoppe, "State or Private Law Society?" (lecture presented at Mises producer of a commodity or service, or
Brasil, São Paulo, Brasil, April 9, 2011). as the absence of "free entry" into a
9 Hoppe, ibid.
14 15
 A SPONTANEOUS ORDER INTRODUCTION

particular line of production. Only one transforming the goods at his disposal in such a way that their resulting
agency, A, may produce a given good or configuration is worth less to the consumer than the sum value of the
service, X. Such a monopoly is "bad" for individual goods used in the process. Thus, profits equate to a production of
consumers, because, shielded from wealth, and losses equate to a destruction of wealth. Fortunately, in a Free
potential new entrants into a given area Market those who destroy wealth or generate losses tend to lose command
of production, the price of the product over ever more resources, freeing them up for more productive use in the
will be higher and its quality lower than market place by more capable market participants. However, no such
otherwise, under free competition. regulating mechanism exists for the State. Because the revenue the State
generates comes from violent confiscation, its resulting profits or losses do
The production of law and order, i.e., of not necessarily correspond with the creation or destruction of wealth. Thus,
security, is the primary function of the it has no rational means by which to make economic decisions such as
state (as just defined). Security is here where a good should be produced, what materials to produce it with, who
understood in the wide sense adopted in should produce it, where it should be allocated, nor how it should be
the American Declaration of produced. Even if agents of the State could miraculously determine the
Independence: as the protection of life, "correct" answers to these questions at a given point in time, the very next
property, and the pursuit of happiness second the answers would become obsolete because consumer preferences
from domestic violence (crime) as well continually fluctuate along with the available technology and supplies to
as external (foreign) aggression (war). satisfy them.

Both propositions are apparently

incompatible with each other. This has Navigating A Spontaneous Order
rarely caused concern among
philosophers and economists, however,
and in so far as it has, the typical Some of the more common criticisms of the Free Market are that it
reaction has been one of taking fails to address externalities, the collective-action problem, a lack of
exception to the first proposition rather uniformity in safety and other quality standards, the free rider problem, and
than the second. Yet there exist of course that it provides insufficient protection for the common man
fundamental theoretical reasons (and against the predations of the greedy business man. All of these allegations
mountains of empirical evidence) that it and many more will be addressed throughout this book.
is indeed the second proposition that is The book starts off with Chapter 0 covering the epistemological
in error.10 limitations of empiricism in the realm of economics. It is due to such
limitations that much of the discussion throughout this book will be based
In addition to the State's monopolistic complacency, the fact that it in theory, logical proofs, and analogies as opposed to seeking credibility
receives payment through aggressive confiscation and not voluntary sale through the lens of empirical data. Of course, some empirical examples will
severely hinders its ability to ascertain which activities are "worth" pursuing. be utilized, but this should not be misconstrued as an attempt to prove the
In the market, this would be determined by comparing one's costs with his propositions made throughout this book. They are instead used to help
revenue. Profits occur when revenue exceeds costs, and losses when costs illustrate some of the concepts which will be discussed.
exceed revenue. One's productivity in the Free Market is reflected by his The next few chapters will then be geared towards providing a
degree of profits or losses. Profits and losses are only able to measure conceptual foundation for the remainder of the book by providing a
productivity because they reflect the purchasing preferences of consumers. rational proof for the Private Property norm, defining the scope and nature
If one is profitable, this means he is generally satisfying consumer of property, examining the characteristics of enforceable contracts, and
preferences; if he is, on the other hand, making losses, this means he is establishing the economic boundaries and role of insurance in a Free
Market.
The remaining chapters will speculate on how various services and
10 Hoppe, ibid.
16 17
 A SPONTANEOUS ORDER

social problems may be addressed in a Free Market in contrast with the

State. The topics covered will range from: health care, monopolies and
cartels, money and banking, road production, law and order, security
production, environmentalism, poverty, education, and the corporation.
The book will then culminate with a discussion on some effective means
one may employ to diminish the power of the State and help usher in a free
Chapter Zero
and voluntary society in its stead.
EPISTEMOLOGY AND PRAXEOLOGY
The Utopian Allegation
-Will Porter, 2014

The purpose of this work is not to suggest that a society based on

free market principles will necessarily be a Utopian one, nor does it require Introduction: Science & Knowledge
a change in "human nature" in order for such a society to arise and be
sustained. Rather, it is to argue that a free market society is both ethically
and economically superior to a State managed one, regardless of what form THE PRIMARY TASK of epistemology is to construct a theory that
the State may take. For this proposal to be true, it does not require people to describes knowledge and how it is attained. Epistemology grapples with the
become better than they are or to adopt a greater social awareness. It must nature and nuances of knowledge: its function, its operation, and its
only assume that they are and forever will be self-interested creatures. This boundaries. The systematic pursuit of knowledge and understanding may be
is not to say that all members of such a society will be misers or deemed science, or, in its more antiquated usage, philosophy. This pursuit must
misanthropes. There will still be crime, and there will still be charity. These be rooted in an epistemological theory – an understanding of knowledge
too are motivated by self-interest. However, the incentive structure that is and the various ways it is acquired.
created by the Free Market most closely aligns the self-interest of the There are virtually endless fields of scientific inquiry, from
individual with the interests of the members of greater society, and meteorology to anatomy, but all of them may be categorized as one of two
therefore crime and other anti-social behavior are most effectively dealt types. Economics, the primary concern of the present work, is a “social”
with in this environment. When reading through the pages of this book, I science, along with fields such as history and sociology. In contrast to the
encourage you to be skeptical, challenging each proposal that is made, and “natural” sciences, like physics and chemistry, social science deals with
to be relentless in your pursuit of truth. I would also encourage you to people’s behavior, interactions, and choices. While both seek to understand
employ this same level of critique to the State itself, and to allow your and explain certain aspects of reality, social and natural science are
objectivity to take precedence over the comfort of the familiar. categorically distinct from one another. It is only with a coherent
epistemological foundation that one can distinguish between the two main
End the State. Free the Market. Liberate your Mind. types of science, and begin one’s pursuit of systematic knowledge about the
world, people, and their interactions.

Ludwig von Mises & Praxeology

During his long career, Ludwig von Mises – the 20th century social
scientist and founder of the modern Austrian School of economics – made
scholarly breakthroughs which have implications reaching beyond the
narrow study of economics. Underlying the Misesian project is a core
theory of knowledge and an understanding of choice-making in human
behavior. Because this body of thought approaches social science in a
18 19
 A SPONTANEOUS ORDER EPISTEMOLOGY AND PRAXEOLOGY

unique and novel way, Mises employed the term “praxeology” to describe and all places, like the propositions of logic and arithmetic. A posteriori truths
distinguish it. Praxeology studies the logical implications of human action, but are, instead, hypothetical and tentative, meaning future observations can
it also provides more general insights into the nature of science itself. The come along and refute them. In light of stronger evidence, new data, or
role that knowledge plays in human action is vital for the Misesian innovations in measuring capabilities, empirical knowledge can potentially
understanding of epistemology and, more particularly, economics. Mises’ always be overturned with a better explanation. Knowledge acquired from
theory of knowledge deeply influenced his approach to science – observational data is, in other words, always theoretically falsifiable, or
establishing ever-more distinct boundaries between the two branches of potentially disprovable by new findings.
scientific inquiry. The epistemological theory offered in the present work To avoid confusion, it should be noted that while a priori
will utilize the concepts and terms of praxeology, analyze important knowledge can be verified as true through deduction alone, the “building
distinctions regarding knowledge, and arrive atop a sound edifice from blocks” of our concepts and language are initially attained through the
which one can proceed into the sciences. As we will see, the work of senses, empirically. Once such concepts are learned, however, the
Ludwig von Mises has paved the way for much of this analysis. possibility arises that they may be employed to discover and establish new
propositions that are true a priori. A priori, then, does not refer to knowledge
attained before all or any experience whatsoever, but merely to what can be
A Priori vs. A Posteriori verified as true, logically, in the absence of any particular empirical data. To
recognize an a priori truth, it clearly requires prior life experience of some
sort, but once grasped it is immediately apparent that such knowledge is
The first task in building a foundation is to determine the true by virtue of logic alone. To illustrate, one must already understand the
difference between “a priori” and “a posteriori” knowledge.11 A priori and a meaning of the words “black” and “white” before he can determine that it
posteriori represent two avenues by which one can attain, or verify, is impossible for an object or entity to exhibit both properties exclusively.
knowledge: by logical deduction and by empirical observation. Attaining a Thus, the avenues to knowledge may be split into two distinct
posteriori knowledge requires specific experiences or observational data of realms: a priori and a posteriori. This important distinction will serve as the
some kind, while a priori deductions may occur in the absence of such data. basis for a dualist epistemology, or one that demonstrates the fundamentally
For example, take the claim that no object can be both black all over and “dual” nature of knowledge, acquired and verified by two different modes
white all over at the same time. This can be verified a priori, by deduction of cognition.
alone, because “white all over” and “black all over” are mutually exclusive
properties. Due to mutual exclusivity, one may reason that no object can
exhibit both properties at once. This is an example of the law of Necessary Truths & Regularity in the Natural Sciences
contradiction, which states that no object or entity can exhibit two
contradictory properties simultaneously. It is an instance of truth, or
knowledge, which can be verified prior to any particular experience – it A priori knowledge is attained by reasoning and reflecting on what
requires only that one reason through the necessary implications of the is necessarily true. A necessary truth is one that couldn’t possibly be
concepts in question. On the other hand, knowledge derived through otherwise, like the law of contradiction. To dispute a necessary truth, one
experience, observation, and testing is deemed a posteriori. The fact that must do so on the grounds of logical validity, rather than with data gleaned
water runs downhill, or that oranges contain vitamin C, can only be from empirical observation. This is clearly applicable to basic mathematics.
affirmed by some particular experience. Without the data attained during One would only demonstrate their own confusion if they attempted to
observation, there is no way to verify or refute an a posteriori truth-claim. In refute “2+2=4” with some new, cutting-edge data. Austrian economist and
order to find the answers to a posteriori types of questions, it is necessary to rationalist philosopher Hans-Hermann Hoppe provides another example of
conduct tests and make observations, to investigate and gather data. a necessary, a priori truth:
A priori knowledge, once established, holds true at all times and in
Whenever two people A and B engage in
11 a voluntary exchange, they must both
The approximate literal translations of the Latin terms a priori and a posteriori are
“Before the fact,” and “After the fact,” respectively. Also, to avoid confusion, note
expect to profit from it. And they must
that in the course of this essay the terms “knowledge,” “claim,” “proposition,” and have reverse preference orders for the
“truth” will be used to refer to the same concept.
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goods and services' exchanged so that A narrower purview, the laws of physics apply to every natural event. It is this
values what he receives from B more background of regularity that allows the inductive sciences – and everyday
highly than what he gives to him, and B experience – to successfully understand the causal relations between various
must evaluate the same things the other phenomena, and to make accurate predictions concerning the future of
way around.12 such phenomena. The method of induction, then, is fundamentally
different in nature from that of logical deduction; they are distinct, separate
A posteriori knowledge, in contrast, involves the material world, modes of cognition.
whose governing laws must be discovered by empirical means. The natural
sciences are largely comprised of this type of knowledge. In the study of
physics, for example, hypotheses are only affirmed or falsified by data Analytic vs. Synthetic & the Synthetic A Priori
gathered from empirical observation. Scientists study this data and attempt
to learn about certain constantly-operating relations of cause and effect: the
laws which regulate and “guide” all natural events. Observational science With the a priori/a posteriori division in mind, another important
cannot avoid assuming that there are constants in nature, and that due to this distinction is commonly made in regard to “analytic” and “synthetic”
regularity, natural phenomena can be understood using data gathered during propositions. An analytic claim is one that refers purely to definitions, such
past observations. In this sense, a posteriori causal laws may be described as as the claim “All bachelors are unmarried.” Even though this statement is
“mechanical,” as they are predictable and remain stable over time. true logically, it is entirely a matter of linguistic convention. A claim whose
Natural scientists conduct experiments by exposing their object of truth depends on nothing more than a definition is also known as a
study to a controlled stimulus, observing, and measuring the resulting “tautology”. In contrast, a synthetic truth is one that reveals something
response. After repeating a series of tests, the observer hopes to extract beyond what may be inferred from the individual definitions of the words
from his data some general regularity between causes and effects, allowing used in a claim. For instance, the claim that “Children prefer candy to
him to formulate the trend into an empirical law. Because a posteriori vegetables” is established as true or false by neither the definitions of
knowledge is dependent upon specific observations and experiences, it is “children,” “prefer,” “candy,” etc. It is instead reliant upon additional facts,
always possible for newly-gathered data to falsify current empirical laws. A beyond what can be found in a dictionary.
theory in the natural sciences holds up only so long as the current data fails If a claim is analytic, it doesn’t yield any new information, and
to falsify it. refers only to the definitions of the words used in the claim. Since analytic
Causal chains may also vary in their degree of constancy. In propositions refer only to linguistic conventions, they cannot give new
physics, laws adhere to a strict regularity with virtually no possibility for ground on truth or information external to the terms themselves. If a claim
deviation, whereas a study like biology may only find frequent regularities. is synthetic, on the other hand, it tells us something new, relevant to
Nonetheless, the method of the natural sciences is induction – otherwise properties, entities, or concepts beyond the words employed in the claim.
known as “causal inference” – where general laws are inferred from a series Most, if not all, a posteriori claims are also synthetic, since they
of tests and observations of the phenomenon in question.13 The laws of always make reference to information external to the terms employed.
physics are especially significant here because every natural phenomenon is These are called synthetic a posteriori propositions and again refer to the
subject to them. While the laws of biology or chemistry have their own same kind of empirically-contingent, observational knowledge discussed
above. Analytic claims, in distinction, are always provable by a priori means
– such as the “bachelors” example – because no additional information is
12 Hans-Hermann Hoppe, "Praxeology and Economic Science" in Economic Science required to verify a tautology.14 Once one learns the meaning of the word
and the Austrian Method (Auburn: Ludwig Von Mises Institute, 1995). — This “bachelor,” it is unnecessary for him to go around surveying unmarried
quote illustrates the concept of mutually-beneficial exchange, an important idea in men to verify that they are bachelors. Other than the definition itself, no
the study of economics. It is necessarily true that when two parties trade, each additional information is needed, and so long as the word continues to be
expects to gain from the exchange. If this weren’t the case for both parties, the
used with the same meaning, the analytic claim will remain true, making it
transaction wouldn’t take place. The very meaning of both parties’ willingness to
trade is wrapped up in the fact that each sees more value in what they will receive,
as compared to what they’re asked to give up in exchange. 14 As shown earlier, one must already know the meaning of certain words before he can
13 Induction is commonly known as the “scientific method”: create a hypothesis, test conclude the validity of any claim. Making any proposition will always require some
and observe, affirm or falsify the hypothesis, revise if necessary, re-test and repeat. understanding of the terms employed.
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verifiable a priori, but no more useful for discovery of new truth. Action may be described as “teleological” in nature. Action simply
While these distinctions may appear negligible, the fundamental refers to that behavior which is conducted in light of one's conceptual
difference between the two sets of terms – a priori/a posteriori and understanding of causal relationships and how they affect the achievement
analytic/synthetic – is that the former deals with whether or not particular of his ends. Hence, any change in observable reality can be described as
experiences are required to verify a claim, while the latter set distinguishes either a “natural” phenomenon, or as a teleological one, brought about by
between claims concerning only definitional conventions from those that an actor who deliberately interferes in the natural course of the world’s
refer to additional concepts, entities, or properties. events.17
Finally, and most importantly, knowledge can be synthetic (non- The domain of natural science is primarily made up of synthetic a
tautologous), and, at the same time, a priori (verifiable prior to any particular posteriori knowledge. Physical laws, like gravity, operate on a constant basis
experience). In the following discussion regarding epistemology and social of cause and effect, and so are said to be causally-structured. Knowledge about
science, the synthetic a priori will carry great significance. As opposed to such causal regularities is gained through particular experiences, using the
empty definitional claims (analytic), or facts attained by empirical scientific method of induction. Future observations may, again, falsify or
observation (a posteriori), the synthetic a priori is an altogether unique, special disprove conclusions derived from past observations, as induction
class of knowledge. establishes only hypothetical truths. Though one may repeatedly affirm a
Some of you may be thinking: this is impossible, it must involve a hypothesis, he cannot reach ultimate or absolute knowledge through the
contradiction. How might one attain new, synthetic insights by way of inductive method of causal inference.
logical deduction alone? Does this imply some sort of infallibility – a Despite induction’s inability to reach absolute certainty regarding
capacity to discover new facts about the world solely by power of reason? particular causal relationships, the principle of causality itself must
Initially, it might seem strange, but to fully understand how this type of nonetheless be considered to govern all events that take place in the
truth is possible, why it is so important for epistemology, and how it applies external, material world. In this context, Mises writes:
to science, exploration into the different types of phenomena is necessary.15
… It is impossible for the human mind to
think of uncaused change. Man cannot
Human Action, Teleology, & “Natural” Phenomena help assuming that every change is caused
by a preceding change and causes further
change.18
The two main branches of science investigate two different types
of events, or phenomena. Natural science seeks to explain a wide multitude In contrast, the realm of synthetic a priori knowledge is concerned
of observable events, from the climate, to chemical reactions, to the with action. Action can only be understood when a conceptual being (i.e.
biological processes of living beings. Purposeful behavior, or “action,” an actor) reflects on what is logically necessary to his own nature. Here it is
however, is a unique exception.16 The holistic study of action is instead especially useful to distinguish action as teleological, or purposeful.19
within the purview of the social sciences.
17 Here I refer to the term “nature” only to mean “that which occurs in the absence of
15 The “analytic a posteriori” type of claim is a subject of controversy, and therefore any purposeful changes created by an actor.” I do not mean to exclude human beings
from the “natural” environment which produced them, and which they are a part of,
has been left out of the main discussion. Nonetheless, various thinkers have tried to
but only to firmly distinguish the phenomenon of action from all other natural
construct examples of such a truth. An analytic a posteriori truth would have to be
events.
attained through experience, yet its meaning would be, at the same time, 18
tautologous. This might relate to how language is learned. That “azule” means Ludwig Von Mises, Theory and History (New Haven: Yale University Press, 1957).
“blue” in Spanish is known only a posteriori, yet the claim that “azule is blue” itself – It is important to note that it very well may be the case that “action” ultimately
is analytic; effectively saying “blue is blue.” operates on the same basis of causality as the rest of the natural world. However,
16 While humans are currently the only life form we know to live up to the status of regardless of whether actions are freely taken or causally determined, it retains
“actor,” one should not reject outright the possibility that there exist actors on other unique traits which distinguish it from all natural events. No other phenomenon
planets, or that certain other complex Earth species are also actors. This, however, is involves the use of conceptual knowledge (particularly the understanding of causal
the task of zoology, not praxeology. The scope of the present work is to define relations) like action does.
19 The term “purposeful behavior” is commonly used as synonymous with “rational
action and elaborate its implications, not to determine which particular beings
happen to be actors. behavior”. “Rational” in this sense simply means choice-making behavior. In
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Teleology is the branch of philosophy which deals with purpose, themselves cannot escape the logical and argumentative necessities imposed
which is intrinsic to the concept and process of choice-making. When a being on them by their own conceptual nature.
makes a conscious choice regarding his behavior, he demonstrates that he Equipped with vital epistemic distinctions between the various
values a particular state of affairs over his available alternatives. Choice, then, types of knowledge, as well as an understanding of how the sciences must
implies purpose, and since action always involves a choice, it is deemed a apply those types of knowledge to distinct realms of phenomena, we may
purposeful phenomenon. Thus, social science, because it seeks to now explicitly delve into the content of praxeology – a series of inter-
understand the teleological type of event, must study the acts of purposeful connected synthetic a priori axioms.
beings – it must study the behavior of actors.20
The spheres of natural and teleological phenomena are distinct, but
are also inextricably linked to one another. In the first place, nothing could Praxeology, The Action Axiom, & The Categories of Action
be said or understood about the natural world without a concept-using,
teleological entity there to experience it. At the same time, the existence of
action presupposes some external reality in which it can take place. While The statement “Man acts” must reside in the realm of synthetic a
abstract conceptual thought has no tangible, concrete existence, it is the priori knowledge: it is true by logical necessity, yet it also offers something
product of a scarce, material body, subject to nature’s causal laws. Indeed, beyond mere definitions. If one attempts to deny this claim – known as the
actors rely on the regularity of such causal laws to successfully reach their “action axiom” – he must inevitably affirm it in the course of his denial,
goals. because a denial is itself a kind of action. This is known as a performative
When actors make choices, utilizing their knowledge and contradiction. When one demonstrates the validity of a claim in the very act
preferences, they deliberately implement causes in the world for the sake of of denying it, the claim becomes axiomatic.21 One cannot deny an axiom
creating particular effects. If an actor’s environment did not operate on without thereby engaging in self-refutation. Originally formulated by the
reliable, causal laws, action would be impossible. An actor could never hope late economist Ludwig von Mises, the action axiom serves as a synthetic a
to predict the effects of his behavior based on past experiences, and priori starting point for the entire study of praxeology. In addition to being
therefore the achievement of his ends would have to take place without any argumentatively indisputable, axioms can also serve as a foundation from
expectation that one particular cause leads to a particular effect. Without a which additional insights may be derived.
causally-stable external reality, every behavior would produce new, unique Due to the inherent undeniably of this concept, any coherent
effects, about which no systematic prediction could ever be made. Actors theory of knowledge is compelled to consider action as its inalienable
would exist in a perpetual state of random flux, wherein any type of starting point – any and all discussion of epistemology necessarily takes
planning or prediction would be impossible. In sum, the world in which place within the context of specific actions. Thus, beginning with the action
action takes place is and must be governed on the basis of cause and effect. axiom, we may extrapolate the fact that action must involve the use of
Whether or not action is itself ultimately governed by causal laws is “means” that are intended to achieve particular “ends”. An actor’s desires
beyond the scope of the present work; however the answer to that question or goals are described as his ends, whereas his means consist of the
has no effect on the logical truths offered by praxeology. Regardless of knowledge (particularly knowledge concerning causes and effects), skills,
what empirical data tells us about action’s ultimate source, actors and scarce resources which he uses to reach his ends. For example, if one’s
goal is to go to the library, he might decide to use a vehicle, various roads,
and his knowledge/ability to drive, all as means to help him get there.
common usage, “rational” refers to someone who makes relatively good choices, Means and ends are inextricably linked to action, and they directly
whereas in the study praxeology it simply means that a being makes conscious
choices (utilizing concepts) at all. Either one of the above terms may be used
interchangeably with the term “action”.
20 21 The notion of the “axiom” itself – as defined in the present work – is fundamentally
To clarify, any life form that is unable to comprehend the notion of purpose –
perhaps by virtue of complete instinct-dominance – is a non-actor. Such organisms a praxeological insight. The very meaning of a proposition which one cannot
are incapable of formulating preferences and conceptual knowledge into plans on argumentatively deny is tied to the idea that there are presupposed truths which lie
which they can act. In contrast to actors, the behavior of this type of being is behind the concept of “action” (and/or argumentation – see below “Knowledge,
considered non-teleological, that is, a part of the natural realm of events. Similarly, Truth, & Argumentation”). It is this which gives axioms their significance. An
phenomena like bodily functions or reflexes – even of actors – are not considered axiom is considered undeniable only because one must affirm it in his very act of
actions. An actor has little to no control over certain bodily operations, leaving them denial. Thus, the only truths which could ever be shown to be axiomatic are ones
outside the realm of teleological, or purposeful, phenomena. with some ultimate relation to the concept of action.
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follow from the action axiom. Every conceivable action can be described or
expressed in terms of the end an actor aims at, and the means he employs Elsewhere, Hoppe maintains that the action axiom and its
to accomplish that end. In Kantian fashion, Mises terms the concepts of categories are not “self-evident,” or tautologous, and that their elucidation
means and ends as “categories of action,” that is, logically implicit provides us with new, synthetic knowledge, affirmed as true out of logical
components in the concept of action itself. Because no purposeful conduct necessity. This strikes to the very core of what it means for a truth to be
could occur without the use of means to achieve ends, they are considered both synthetic and a priori. While they may not be, and often are not,
categories of action. The categories are, in other words, “essential elements” explicitly understood immediately, once one is confronted with these
of action. Thus, not only is the action axiom itself a synthetic a priori truth, insights, he cannot coherently deny them.
but so are each of the categories derived from it. They are equally
indisputable, as their denial, too, must entail self-contradiction. The
concepts of value, choice, preference, cost, profit, and loss are also Prediction, Observation, & Reflection
categories of action, each implicit in purposeful behavior and its means-
ends framework. Hoppe elaborates further on how these synthetic a priori
categories are axiomatic and inherently contained in the action axiom: The teleological concepts of purpose and choice are not observable
to the five senses. Hence, in studying the phenomenon of human action
For any attempt to disprove the validity one cannot go forward on empirical data alone. Empirical science studies
of what Mises has reconstructed as causal regularities, and this allows for predictions to be made based on past
implied in the very concept of action [the observations. Social science, due to the unique conceptual traits of its object
categories] would have to be aimed at a of study, cannot proceed in such a manner. For example, in the natural
goal, requiring means, excluding other science of chemistry, predictions can be made about chemical reactions
courses of action, incurring costs, based on observations and tests conducted with certain chemicals in the
subjecting the actor to the possibility of past. If one tried to apply the same method to the phenomenon of action,
achieving or not achieving the desired he would soon learn that no two individuals respond to external events in
goal and so leading to a profit or a loss. precisely the same way. A stimulus – or cause – which provokes a particular
Thus, it is manifestly impossible to ever response – or effect – from one actor may radically differ for another, due
dispute or falsify the validity of Mises' to their unique preferences, values, and knowledge-sets. The same holds
insights. In fact, a situation in which the true even for a single actor at different instants, as his values and
categories of action would cease to have a knowledge-sets constantly fluctuate over time. The only conceivable way one
real existence could itself never be could determine the future actions of another would be if action is truly
observed or spoken of, since to make an dictated solely by observable causal forces, and if he could take into account
observation and to speak are themselves all the observable factors affecting this other person. This would include a
actions.22 [Emphasis mine] given actor’s genetic disposition, the configuration of his brain and how it is
affected by all types of stimuli, the physical capabilities of his body, his
And also: surrounding environment, etc. The observer would then have to understand
how this immense set of factors affects each other, and only at this point
All of these categories which we know to may he hope to extrapolate a prediction of another’s actions with certainty.
be the very heart of economics – values, This is, of course, currently outside of mankind’s technical abilities.
ends, means, choice, preferences, cost, However, whether or not this sort of prediction is even theoretically
profit and loss – are implied in the axiom possible will have no impact on the insights derived from praxeology nor
of action.23 will it in any way affect the epistemic boundaries established by it. A good
analogy would be to think of praxeology as providing the formula and
empiricism as providing the variables. One requires insights from
22 Hoppe, "On Praxeology and on the Praxeological Foundation of Epistemology," praxeology in order to meaningfully and coherently interpret empirical
Economic Science. economic data, and only through praxeology may incontrovertible
23 Hoppe, ibid.
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economic laws or principles be formulated. illustrate the fundamental difference between facts learned through
In praxeology, action is not understood using empirical data, but empirical observation, and axiomatic truths attained and verified via
only through a priori reasoning, or “reflection,” on necessary, axiomatic reflective reasoning.
truths (i.e. the axiom of action and its categories). To verify the truths of Thus, it is confirmed that action is conceptually distinct from all
praxeology, one need not go further than the conclusions generated by his other phenomena. Unlike any other type of event, one can derive logical
own thoughts, rendering empirical data utterly extraneous. Due to the insights concerning action prior to any specific experiences, while still
vantage-point of an actor, he is in a unique position to observe, or reflect revealing new, non-tautologous information. This is the fundamental
on, the concept of action – a position he can never be in while observing distinction upon which the entire edifice of praxeology is built, and it has
any external, natural phenomena. (The existence and specific traits of serious implications for scientific inquiry in general, and for social science in
natural phenomena can only be known through the inductive scientific particular.
method.) The notion of a synthetic a priori truth – once seemingly
Since all of man’s observations are necessarily those of a choice- contradictory – now becomes wholly viable and indeed inescapable when
making actor, one could not attempt any empirical observation of action one begins to examine the nature of purposeful behavior. One could not
without already presupposing its existence and the validity of all its undo the truth of these claims, since actors implicitly demonstrate their
categories. Any attempt to observe action is itself an action, guided by value validity in any attempt to deny them, as well as in any attempt to observe a
and purpose, using scarce means and aimed at a desired end, taken in place situation that did not comport with them.
of other alternative actions, and thereby incurring the cost of lost
opportunities. One could, therefore, never hope to step outside his status as
an actor to observe action in any way at variance with the insights of Knowledge, Truth, & Argumentation
praxeology. These insights take logical precedence to any observational
data, as man's observations themselves logically must conform to the
structure and existence of action in general. With the idea of purposeful behavior elucidated, the next task is to
If one does attempt to observe an instance of human action, he will explore the vital role that knowledge itself plays in action, as well as the
only see an entity moving around in some particular way. Nothing about roles that language, proposition-making, and truth-validity play in
choice, value, cost, profit, means, or ends will ever be made apparent to the knowledge.
senses of an outside observer. While purpose can be conceptually inferred Knowledge is the product of a conceptual mind sorting out sensory
from observations of an actor’s bodily movement, purpose is itself never data and merging it into an integrated experience, allowing an actor to
actually seen or understood as a result of a mere observation. It is only by navigate and understand his environment. Deliberately utilizing means in
reflecting on the logical, conceptual nature of action that one can truly order to reach goals, or ends, requires the use of knowledge and technical
understand it. Thus, no entity but an actor could have access to such know-how, without which, purposeful behavior would be impossible.
information. Before one engages in action, he must first identify his current situation,
A clear example of this sort of reflection can be found in the determine a more preferable state of affairs, and finally discover how he
recognition that every conceivable action is comprised of means intended might reach that condition through his behavior. An actor must figure out
to achieve ends. This is not apparent to empirical observation, but only the proper changes he is to inflict into the world in order to bring about the
deduced from reflecting on the nature of action. It is unnecessary, and desired effects, i.e., in order to reach his end. This process involves
indeed impossible, to take measurements and conduct tests in order to “filtering” sensory data through one's mind to extract the relevant
prove that actions always make use of means and are aimed at ends. To information, with the additional ability to conceptualize, allowing an actor to
verify that claim, one needs only to reflect on what it means to act toward a structure his knowledge in an explicit and concrete way suitable for the
goal (something all actors are necessarily capable of doing).24 This should realization of his purposes.
Errors, of course, are always possible, and knowledge regarding
24 To clarify, it is not the specific content of an actor’s values and ends that can be
certain causal chains or facts about the world may not, in reality, hold true.
known a priori, but only the general fact that actors desire the achievement of ends Nevertheless, knowledge – correct or not – is more than just sensory data,
at all. One could not deny this without implicitly affirming its truth, as again, any but sensory data interpreted and conceptualized by a purposeful, choice-
denial would involve the use of means intended to achieve an end, and would making agent.
thereby constitute an action itself.
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The only way to formulate and express conceptual knowledge is by Arguments are only meaningful at all when the participants realize that
means of language, either verbal or symbolic. Indeed, it is difficult to even claims to knowledge must be consistent with some basic standard of
imagine conceptual thought totally detached from language, as language verifiability, not merely based in their own subjective whims.
gives expressible form to concepts by assigning their meaning to shapes, Thus, implied in the meaning of truth-validity are, at least, the
symbols, and sounds. A language-using entity essentially cannot escape the logical laws of existence (“Something exists”), identity (“Things have
use of language in formulating his ideas; language is his primary faculty of distinguishing properties that separate them from all other existing things”),
expression for any knowledge, information, or concept at all. Besides and contradiction (“Because things have particular identities, they cannot
spoken and written language there are also forms of gestural and pictorial exhibit mutually exclusive properties simultaneously” or, more simply, “A
communication, but only insofar as such gestures and images can play the cannot be both A and not A at the same time”).
same role as words in carrying the meaning of concepts can a truth-claim be When one says something is true, he means most fundamentally
expressed in this way. that it is in accord with these basic logical laws. Additional empirical data
A truth-claim, or argument, is an affirmation or negation of some may be required to verify a particular proposition, but if a claim is directly at
facet of reality or some causal relationship. When two language-users reach variance with a logical law, it can be immediately rejected as false. Logical
a disagreement regarding a claim to truth, they are able to engage in laws, then, are implied – wrapped up – in the very concept of
argumentative exchange in an attempt to resolve it. Both sides give their own argumentation.
account and each weighs the other’s claims against some standard of To illustrate: during argumentation one cannot conceivably avoid
validity to reach a conclusion. Argumentation is the necessary result of an assuming that something exists; that is to say, the existence of entities, objects,
actor’s ability to categorize entities and properties into a conceptual and matter is indisputable. An argument has to be made by some entity in
framework. Without the ability to organize concepts, not only order to be expressed at all. Also implied in argumentation is the fact that
argumentation, but action itself would become altogether impossible. existence is made up of more than just one homogeneous thing; it implies a
It is the expression of one’s concepts using sounds and symbols diversity of entities and properties. Language, and therefore argument,
that other language-users can understand as meaningful. If one tried to deny would lose all meaning if there were zero distinctions to be made about
that language had meaning, he would find himself in a performative anything in reality. To negate or affirm anything using language in the
contradiction. An objection to any given proposition implies the objector course of an argument, one implicitly assumes a diverse range in the
considers his words meaningful, thereby directly contradicting the content identities of things, to which different concepts and words refer. Finally,
of the objection: “language has no meaning”. Since the existence of related to the presupposition of identity is the fact that objects and entities
argumentation is itself argumentatively indisputable, we may also deem it cannot, at once, exhibit 100% of one property, and 100% of another
axiomatic. In other words, one cannot reasonably argue that one cannot mutually exclusive property. In other words, contradictions cannot occur in
argue. reality, because each extant entity has its own unique set of properties
It therefore becomes equally impossible for one to deny that he which distinguish it from all other things. No matter how hard one tried,
knows the meaning of truth-validity, since in his very act of denial he any argument imaginable would implicitly assume the validity of these three
demonstrates his possession of such knowledge. To dispute any claim logical laws – they underpin the very meaning of truth itself. Again, even if
whatever, the speaker must appeal to some standard of truth – otherwise, one is ultimately in error regarding a particular truth-claim, to express that
on what grounds could he possibly dispute anything? To support any claim at all the same presuppositions must still apply.
position, or to undercut the position of an opponent, one must make use of Similar to the broader concept of action, a necessary component of
truth-claims in the course of an argument. Hence, that language, argumentation is knowledge. The determination of truth-validity and the
argumentation, and truth-validity are genuinely meaningful concepts must subsequent use of that knowledge is an essential element to choice-making,
already be presupposed if one is to make a case for, or against, anything at regardless of whether or not a particular actor’s conclusions turn out to be
all. actually true. The same holds true for argumentation.
The propositions made during an argument, further, are verified or Without at least the faculty to distinguish between truth and
refuted primarily on the basis of logic. In claiming the validity of any falsehood, one could not formulate arguments, nor could he engage in any
proposition, an actor presupposes some objectively-ascertainable standard choice-making behavior at all. As with means and ends, knowledge is a
of truth. If, on the contrary, each person could have his “own truth,” it category of action because no specific action could be conceived of that did
would be meaningless to argue over the validity of any proposition. not contain knowledge as a necessary ingredient. It might be deemed a

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special type of the “means” category, but knowledge is nonetheless essential Depending on one’s interpretation, the work of traditional
to the concept of action. rationalists, like Gottfried Leibniz and Immanuel Kant, seems to imply that
Furthermore, because knowledge is subject to validity-verification, external reality must conform to the mind, rather than the other way
it serves an active or “positive” function in choice-making. Means and ends around. This would clearly entail some sort of idealism, where thought
are neutral categories, in that all that can be done with them is to simply fill either creates or distorts reality.
them with the particular content of a given action. Knowledge, on the other In contrast to the empiricist model of the mirror-like mind –
hand, is true or false, right or wrong, correct or incorrect. Determining the inspired by thinkers such as David Hume and John Locke – where all
validity of specific claims is an essential part of how an actor guides his knowledge is derived purely from sensory data, the traditional rationalist
behavior. model is one of an active mind which meets reality with its own structure of
Knowledge is only useful insofar as it can provide actors with a priori knowledge. This mental structure, Kant believed, was comprised of
causally-effective means to achieve their ends. When one acts on incorrect various “categories of thought”. For example, Kant considered the
knowledge about the effectiveness of a means, the likelihood that he will principle of causality as such a category. He correctly thought that the
actually achieve his end is severely diminished. An actor’s means, ends, and general existence of cause and effect was not to be observed through the
preferences are all determined based on what he knows about his own senses, but rather that it was necessarily understood prior to any specific
values, and the current environment in which he is situated. Each actor’s observation. Indeed, as Mises suggests, the human mind cannot even
surrounding circumstances will also, in turn, influence his knowledge, fathom the notion of an observable change in reality that was not the effect
preferences and decisions, as different situations offer unique experiences of some prior cause. The rationalist accounts for causality by deeming it
and obstacles to overcome. We may conclude here that the ultimate role of part of the logical structure of the human mind, rather than something to
knowledge is to enable actors to succeed in achieving their ends. be seen, heard, or felt. For Kant and Mises, then, the principle of causality is
an a priori presupposition, not a falsifiable empirical fact.
*** In the same way that praxeology uses the term “category” to mean
a logically essential element or component, the traditional rationalist notion
The task of epistemology has traditionally been to explore the of categories also consists of truths that are necessary, presupposed
nature of knowledge. The true function of knowledge, as we have seen, lies ingredients of experience. The principle of causality, while not observable,
with man’s ultimate nature as a choice-maker. Actors use knowledge to cannot be detached from any human experience; its existence is
navigate between truth and falsehood for the sake of enabling effective presupposed and indisputable. Along with causality, Kant deemed “time”
action. One may also formulate knowledge into a truth-claim, expressed by and “space” as categories of thought as well, on the premise that one
language, and such a claim is verified or refuted primarily on the grounds of cannot experience or observe anything without implicitly assuming a
presupposed logical axioms, and if necessary, empirical data as well. general existence of time and space. One could never experience a situation
Epistemology also asks whether there is more than one type of completely devoid of space, nor could any experience take place outside the
knowledge and, if so, it distinguishes where one ends and the other begins. unrelenting flow of time.
We have discovered how “action” is the only area of study that can yield Because raw observational data is nothing more than light photons,
synthetic discoveries in an a priori manner. This further illustrates the dualist sound waves, touch-textures, etc., no part of it is inherently logical or
character of our epistemology – there are only two routes to attain new conceptually-structured in any way. Kant’s categories of thought are
knowledge: deductive reflection and empirical observation. concepts which help the mind to organize such sense data into something
rationally understandable. In other words, a conceptual being does not
merely utilize sensory data alone; it is organized by, and integrated with, a
Kant, Dualism, & the Empiricists priori presuppositions (in Kant’s terms, the categories of thought). This
insight strikes at the very meaning of human rationality, a faculty of
conceptual understanding which goes beyond mere sensuous stimulation.
With praxeological insights at hand, an age-old empiricist objection The essential rationalist claim is that the human mind must meet
– that dualism leads to a form of metaphysical idealism – can now be
successfully addressed.25
25 “Idealism” in this context simply means that the objects of physical existence are
somehow reliant upon, or created by, the mind.
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observational reality with its own toolbox, so to speak. Kant referred to this their neglect of the praxeological aspects.
as the “manifold of apperception,” where the human mind processes raw The epistemologists dealt with thinking
sensory input through the categories of thought, resulting in a unified as if it were a separate field cut off from
conceptual understanding. In order to coherently grasp the plethora of data other manifestations of human
with which man is always bombarded, Kant thought that man’s mind must, endeavor. They dealt with the problems
from the outset, order conscious experience causally, temporally, and of logic and mathematics, but they failed
spatially. to see the practical aspects of thinking.26
To this claim, the empiricist might retort that if such an a priori
structure of thought was really in place, prior to, or independent of, all Kant’s free-floating categories of time, space, and causality are, instead,
experience, in what way could this structure have anything to do with directly contained in the action-categories of means and ends. Thus, an end
actual, observable existence? If the rationalists were correct, the empiricists is accomplished only after some means is employed; time necessarily elapses
charged, this would mean either that the human mind would have to create between the two. Furthermore, all action must take place in some physical
our reality according to that logical structure, or that the mind distorts environment, unavoidably understood by any actor as spatially-structured.
reality into something different than what it truly is. In other words, the Even if reaching one’s end did not involve much bodily movement, all
empiricists argued that the only way for the rationalist to proceed was to action must take place somewhere in space. At the very least, all action
adopt some flavor of idealism, where the structure of the human mind involves the utilization of standing room and the time consumed by the
distorts reality in order to render it understandable. action itself. Causality, finally, is also integral to action, as ends are only
However, in light of praxeological theory, we can further elaborate reached as the effect of some means; actors deliberately inflict causes into the
on the notion of an active mind as one that is constrained by the categories world in order to reap their effects.
of action. With this idea, we can now answer the empiricist's objection.
Unlike any other phenomena, action is unique in that it
simultaneously has a foot in both the teleological realm of thought and the A Realistic Epistemology & Re-Formulating the Categories of Action
natural realm of existence. One might say that action is the intermediary
between the two – where conceptual thought meets observable reality.
Indeed, action is the external implementation of internal knowledge and Because actions take place in a concrete reality, the action-
preferences – transforming some aspect of the natural world with the categories must fundamentally reflect that reality in some way as well. In
intention of bringing about a more preferable state of affairs. understanding the role that action plays in our theory, we can bridge from
The categories of action – means, ends, value, choice, knowledge, abstract conceptual thought into concrete reality, yielding a very realistic
(the principle of) causality, etc. – are unavoidably valid once the meaning of epistemology. As opposed to an untenable idealism that cannot account for
action is formulated, expressed, and its implications unpacked. Hence, the connection between thought and reality, our theory offers precisely that
rather than being free-floating figments of the mind with no foundation in connection. Thus, the traditional rationalists are correct in claiming that
reality, as were Kant’s categories of thought, the categories of action are certain synthetic truths can be known a priori, but it is only the concept of
rooted to the very real – and indisputable – concept of purposeful behavior. action that can ground these truths to observable reality and escape all
We can now see that Kant's idealistic mental categories become the forms of idealism. Since action is guided by thought, yet also affects change
praxeological categories of action. The difference here is that the into the external world, the categories of action are not only laws of
praxeological account puts vital emphasis on the notion of action, which thought, but laws of reality as well.27
has immediate relevance to external reality. The traditional rationalists
focused more exclusively on the nature of reason and experience, whereas
26 Ludwig von Mises, "Some Preliminary Observations Concerning Praxeology," in
praxeology seats conceptual thought within its function in action, thereby
linking abstract thought to the concrete reality in which action must navigate. The Ultimate Foundation of Economic Science (New York: Van Nostrand LTD.,
1962), 2.
On this, Mises comments: 27 This serves to reconcile the small quarrel between Ludwig von Mises and Murray N.
Rothbard, two giants in the field of praxeology. The latter maintained that
The main deficiency of traditional praxeology furnished existential laws, whereas Mises held that they are
epistemological attempts is to be seen in epistemological laws. We can now see that they are both. This reconciliation opens
the possibility for an action-based theory of metaphysics, but that will have to be the
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Now that we understand how the action-categories are legitimately of an entire society, this methodology becomes indispensable.
synthetic a priori, their function in purposeful behavior, and their uniqueness
among all other knowledge, we can further derive a complete list of them.
We have already explored the categories of means, ends, knowledge, Empiricism in the Social Sciences
existence, identity, contradiction, causality, space, and time, but we
only briefly touched upon the categories of preference, choice,
cost/price, profit/loss, and value. All of these concepts are directly There are schools of thought that actively seek to refute the
deduced from the action axiom: the seemingly basic claim that man acts. existence of such synthetic a priori truths as the action axiom. Two camps
Let us now explicitly demonstrate each category’s inextricable role emerged in 20th century German academia who opposed the notion of the
in action, by way of a hypothetical objection – an attempted denial of the synthetic a priori: empiricists and, their more radical variant, the Logical
action axiom and each of its categories. In the very act of objection (and, Positivists. The empiricists and their more exciting positivist cousins –
indeed, in any act whatsoever), one must pursue an end to which he while supporting the relatively tame epistemology that knowledge is
attaches value. One aims to accomplish this end by employing some primarily gained through the senses – were very skeptical that anyone could
number of means; knowledge necessarily being one of them. Further deduce a corpus of epistemological philosophy through a priori axioms.
implied in the concepts of means and ends are the categories of space, Such a philosophical foundation would establish the potential
time, and causality. In his objection, the speaker must additionally make a legitimacy of science conducted on the basis of a priori truth, rather than by
choice, setting another course of action aside, thereby incurring the cost of induction alone. It was, in fact, Ludwig von Mises who discovered that
a foregone opportunity. From the costs assumed by choosing one thing in social science – and more particularly, economics – could only deal with the
favor of another, the price of each opportunity emerges in respect to the logical implications of human action. Working from the typical
person’s set of preferences. If the speaker accomplishes his end and understanding of his predecessors, Mises revised economic method to fit
satisfies his preference (something we know to be impossible, assuming the into the framework of praxeology. Contrary to the popular intellectual
speaker’s end is to meaningfully refute the concept of action), he can be fashion of his time, Mises concluded that economics was necessarily a study
said to have attained a profit.28 If the end reached by the actor does not of action, and could not be based in the traditional Baconian scientific
satisfy his expectations, to the extent that his costs exceed his benefits, he method. In economics, observations can only be interpreted with the aid of
takes a loss. Finally, all of this must imply an existence in which to take an a priori theoretical structure, which is precisely what praxeology provides.
place, comprised of various objects, things, and entities. Each thing exhibits If one tried to forego praxeology in an attempt to derive a theory from only
its own unique identity, which rules out the possibility of contradictions. observational data, he would run into problems immediately. The
It is possible that there are additional action-categories, and so conclusions of praxeology are, indeed, inescapable.
while the list may not be exhaustive, it constitutes what can be known about The positivist objects to this; he maintains that the only two
reality a priori. It provides various existential facts that can be deduced, possible kinds of truth are analytic definitions (tautologies) and tentative
logically, each fact having a direct logical relation to human action. empirical hypotheses. This perspective essentially states that certainty cannot
Due to the way praxeology applies to all actors, the conclusions it be claimed about anything unless it is definitional, which can only involve
yields are universal. They are not unique to social, ethnic, national, linguistic conventions. Positivism attempts to introduce a skepticism
psychological, or any other distinction; instead, they apply to each and every regarding the human capacity for attaining genuinely absolute knowledge.
acting agent. With an overarching theory that encompasses all purposeful These academics claimed that the realm of a priori knowledge is exclusively
behavior and the knowledge which guides it, we may proceed into the social comprised of mere linguistic conventions, representing only arbitrary
sciences carrying some vital epistemological assumptions. In the study of transformation rules of various symbols (language and/or mathematics)
economics, we utilize praxeological insights to derive economic laws, which without any scientifically relevant relation to observational reality.
are used to properly interpret the data that reflects purposeful behavior. Although the positivists accepted that there is indeed a dichotomy
When analyzing the complex, interwoven patchwork of actions on the scale between the realms of a priori and a posteriori knowledge, they postulated that
nothing from the former realm could give us any new or meaningful
subject of another essay. information. To them, a priori truths were virtually free of content in regard
28 Note that “profit” does not necessarily mean monetary profit, as the term is to the reality of the world as it exists. Concerning this claim itself, however,
commonly understood. An actor may profit only mentally, or psychologically, but in one must ask: what kind of truth is that? According to positivist
the context of praxeology, it is profit nonetheless.
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epistemology, the claim that “A priori knowledge can only be tautologous” If one were to conduct consecutive experiments with the goal of
is either a tautological definition that tells us nothing new, or only a refuting or confirming a proposed theory, it seems one could not
hypothesis, in which case, such a claim may well be falsified in an consistently commit to the empiricist idea that all non-tautologous
experiment. Before verifying such a theory, scientists would have to go knowledge must be empirically-attained. Causes and effects, as Hume
around “testing” every conceivable proposition to make sure it was in famously noted, are themselves nowhere to be seen in observation. But
accordance with their epistemological account (that all knowledge is either while Hume thought this meant that causality did not itself exist, the truth is
empty and tautologous or hypothetical and tentative). that causality is only known through non-empirical, or a priori, means.
If we apply the positivist logic to its own epistemological claim, it is If reality were not causally-structured, it would not make sense to
self-refuting. Because the positivists do not regard their own epistemology say that a past observation could be either confirmed or falsified by any
as tentative and hypothetical – but rather necessarily binding for all future observation. For example, ask yourself: if observing Experiment A at
knowledge-claims – they must, on pain of contradiction, reject their own time T1 is to have any relevance whatsoever to observations made during
methodology. Recall how the positivists want to assert that only two types Experiment B at time T2, what must be true for this relationship to exist?
of knowledge exist: logical relations of the type “All bachelors are What is to bind these observations to one another, so to speak, and allow a
unmarried men,” and empirical facts, which can potentially always be scientist to apply information gathered about past events when making
falsified by future experiments. When this distinction is applied to the predictions about future events? In other words, why is it not simply that at
positivist epistemic claim, there can be no solution. According to their own T1 we see one thing happen and at T2 we see another? Why should there
criteria, it must be either logical-tautologous (as in the bachelor example), or ever be a problem? Why is it true that T2’s results could “falsify” or
empirical; but in either case, they are doomed. For positivists clearly do “confirm” the results from T1? Without the use of any a priori knowledge
regard their methodology as helpful and able to offer new information, yet regarding causality, this question could not be coherently answered. Any
at the same time believe their methodology to be true without requiring any given set of observations would have to be seen as simply logically
corroborating empirical data to prove it. Contrary to their own position, the incommensurable with any other set; no hypothesis could ever be tested,
positivists must consider their epistemological claim to be non-empirical confirmed, or refuted. When a scientist derives a theory from his past
(because no experiment could falsify it) and also useful because it claims to observations, the only possible way for him to test that theory is with the
offer more than a mere definition. The central claim of positivism, then, assumption that future instances of the same phenomena will operate on
cannot survive its own distinction. The only way they could ever hope to the basis of the same causal relations. Without this a priori assumption of
salvage it would be to concede that it indeed is a synthetic a priori claim, at the principle of causality, the empirical scientist has no coherent or
which point they would have conceded the entire argument, as that is systematic way in which he can test his theories; every new set of
precisely what they were trying to dispute in the first place. observations is completely independent from and irrelevant to the last set.
But that is not all – there is a second critique which must be But it would seem quite ridiculous to deny the acute success of the
addressed in regard to this school of thought. Sociologists and economists observational sciences. The astonishing advances in technology and
employing a purely empirical method are essentially mimicking the natural scientific understanding over the 20th century alone clearly demonstrate the
sciences, like chemistry or physics. A tentative hypothesis is posited and practical validity of assuming the existence of a causally-structured reality.
empirical observation and experimentation are used to affirm or invalidate The a priori assumption made by empiricists – that physical reality operates
the proposed theory. Ignoring the obvious objection that there is no on constant and stable relations over time – is not justified under the
sociological or economic laboratory where variables can be steadily positivist-empiricist theory of knowledge. Due to the principle of causality,
controlled, there is an even more fundamental error associated with the however, scientists are able to make successful and accurate predictions
attempt to apply the empirical method to any study concerning human about empirical events based in what they have learned from past
action. This error is best illustrated when we analyze the basic assumptions observations.
implicit to the empirical method. In absence of such assumptions, empirical Contrary to empiricist doctrine, then, the principle of causality
science would be either impossible or meaningless. But by incorporating must be taken to be a meaningful synthetic a priori statement. In fact, no
them into our explicit understanding, it soon becomes apparent that no empirical science could be undertaken without this basic, non-observable,
strictly empirical method – free of all a priori assumptions – could ever yield non-falsifiable, understanding that causes create effects in constant and
fruitful discovery in the study of action, further demonstrating the vital predictable ways.29
importance that praxeology has to the field of social science.

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It is important not to mistake any of the above as an attempt to to force math and science to fit their incorrect notion of a geocentric
render the scientific method illegitimate or invalid, quite the contrary. universe. Such an exercise can only result in overly-complicated falsehoods
Rather, the question concerns the scope of applicability for the inductive that serve to muddy the waters for future scientific inquiry.
scientific method. The traditional scientific method may still have some
limited uses in social science, but the implications of praxeology must be
taken as our primary methodological tool. Data in the social sciences can Conclusion
only be interpreted on the basis of a theory, and so theoretical insights are
required for a systematic understanding of any kind. In the social sciences,
data never speaks for itself, but requires the application of a sound (a priori) Human action, and the sciences which study it, must be examined
theory in order to extract any meaningful conclusions. Praxeology furnishes with the tools which are attained through reflective contemplation of our
this theoretical structure. own nature as choice-makers. Only the logical ramifications of action can
In regards to predictions, one can say that specific types are provide tools wholly useful for social science. While the action-categories
inherently untenable. Any prediction that is at variance with the a priori truths prohibit one from attaining predictively-helpful causal relations from
derived from the action axiom can be immediately rejected as systematically empirical data, the application of the action-categories does still allow for
flawed. For example, one could not reasonably predict that an actor will not fruitful analysis, scientific insight, and the use of economic law.
employ the first unit of a given set of homogeneous goods toward its Epistemological dualism allows one to distinguish between the two,
currently most-valued end (and the second to its second-most valued end, categorically distinct, areas of knowledge. The two branches of science
and so on). The fact that actors employ resources to their most valued ends which closely correspond with that distinction are also elucidated by this
is part of the economic law of “diminishing marginal utility,” which is dualism. Economics, history, sociology and the like all involve human
derived, a priori, from the action axiom. This all-important axiom, then, action as their primary subject matter, and thus require an entirely different
serves to confine the logical scope of prediction in the fields of social method than that of the physical sciences. The fundamental distinctions
science. made by rationalist philosophy have carved the way for an action-based
With the above in mind, it becomes quite clear why a strictly epistemology; one that recognizes the fundamental difference between a
inductive method has no place in a discipline like economics. The priori-deductive and a posteriori-inductive knowledge. This understanding
mainstream economic orthodoxy constantly makes a variety of impossible provides a rock-solid edifice from which an entire science of market
predictions using statistics, linear regression techniques, and econometrics. exchange can be derived – known as economics, or, as Mises terms it,
One who takes data about the past and lumps it into a statistical aggregate “catallactics.”
can only yield a historical account of past economic relations. One can In closing, praxeology offers more than just epistemological truth,
never use such aggregates alone to scientifically forecast future economic but truth regarding the nature of the social sciences and economic
phenomena.30 Attempting to do so is akin to Ptolemaic astronomers trying methodology. No longer is economics a discipline which aims to ape the
methods of the physicist, but one that has its own toolbox to deal with its
own unique set of problems and questions. With the conceptual framework
29 To quickly address the possible objection that certain aspects of quantum physics of action established, one may move into the realm of economic science
somehow disprove the idea of a stably-structured reality, one can only answer: as far well-equipped. It is the concept of purposeful behavior which ultimately
as praxeology is concerned, quantum states and infinitesimally small measurements grounds our theory of knowledge, and, proceeding into science, it is this
of time and space are not relevant for actors. Action is always concerned with the
action-based epistemological framework which grounds economic theory.
marginal – not the quantum – level. Man is not able to act on the basis of such
inconceivably small distinctions, but only those which he can actually detect. The age-old quarrel between the rationalist and the empiricist
Quantum physics may well upset or shake up conventional notions of causality, but frameworks of knowledge can now finally be laid to rest. Whether for
so long as the discussion is focused on human action, we have no reason to assume physical or social science, one cannot avoid the necessity of employing
that the principle of causality is invalid. On the contrary, action per se implies that
actors recognize their actions as demonstrably affecting their natural surroundings
on the basis of cause and effect. Quantum physics could not refute the fact that there forecasting that entrepreneurs commonly employ in the market. Entrepreneurs
is a significant degree of stability in the world in which man acts, and that, in acting, discover or follow trends in an attempt to anticipate the desires of other actors;
he implements and observes definite causes to reap (and, in the case of science, however they are useless, by themselves, in formulating a scientific “law.” Such
study) their effects. trends can yield no information regarding causal relationships, but merely illustrate
30 It is important to distinguish systematic scientific prediction from the type of facts about historical trends and events.
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synthetic a priori knowledge. Rationalism – as espoused by the likes of

Immanuel Kant, Ludwig von Mises, and Hans-Hermann Hoppe – has truly
validated the human faculty of reason, and man’s capacity to grasp genuine
existential truths: truths regarding the marvels of the rational mind, and the
universe which it relentlessly endeavors to master.
Chapter One
LIBERTARIANISM

The Purpose of Property Norms

BECAUSE THE DESIRE for many resources exceeds their availability,

there exists potential for interpersonal conflict to emerge over how they are
to be employed. To address this issue, property norms are established to
provide an objective basis for reconciliation. Without such norms, the
alternative would be destructive interpersonal conflict where presumably
"might makes right" would reign as a social paradigm. Although there exist
many variations of property norms, the purpose of this chapter is to
demonstrate why any valid norm must be logically compatible with private
property and its libertarian implications. Hoppe expounds upon the
function of property norms in general:

To develop the concept of property, it is

necessary for [economic] goods to be
scarce, so that conflicts over the use of
these goods can possibly arise. It is the
function of property rights to avoid such
possible clashes over the use of scarce
resources by assigning rights of exclusive
ownership. Property is thus a normative
concept: a concept designed to make a
conflict-free interaction possible by
stipulating mutually binding rules of
conduct (norms) regarding scarce
resources.31

31 Hans-Hermann Hoppe, "Property, Contract, Aggression, Capitalism, Socialism" in A

Theory of Socialism and Capitalism: Economics, Politics, and Ethics (Boston:
Kluwer Academic, 1989), 18.
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 A SPONTANEOUS ORDER LIBERTARIANISM

they are treated as scarce means, that is, as

The Nature of the Libertarian/Private Property Ethic soon as they are occupied in some
objective borders and put to some specific
The Libertarian Ethic (aka the Private Property Ethic) holds that all use by someone. This act of acquiring
legitimate rights are derived from property rights. The most fundamental of previously unowned resources is called
which concerns one's relationship to his own physical body i.e., that he and 'original appropriation.' Once unowned
he alone has an exclusive claim to it. This is commonly referred to as “the resources are appropriated it becomes an
principle of self-ownership." aggression to uninvitedly change their
To own something, especially one's body, means to have final say physical characteristics or to restrict the
over the employment or use of whatever is “owned”, provided that such owner’s range of uses to which he can put
employment does not entail the initiation of uninvited physical interference these resources, as long as a particular use
with another person's body or their justly-acquired property. Simply put, does not affect the physical characteristics
only the owner(s) of something have the exclusive right to use it; they are of anyone else’s property—just as in the
likewise justified in resisting demands made on their property by others. case of bodies. Only in the course of a
From the concept of property rights, one may derive the Non- contractual relationship, i.e., when the
Aggression Principle (NAP), which states that no one may justifiably initiate natural owner of a scarce means explicitly
uninvited physical force against another person's body or property, or make agrees, is it possible for someone else to
threats thereof. Thus, when "aggression" is referenced in this work it will be utilize and change previously acquired
referring to the uninvited initiation of physical interference with one's things. And only if the original or previous
person or property. owner deliberately transfers his property
The only two legitimate methods of acquiring property, according title to someone else, either in exchange
to the Libertarian Ethic, are original appropriation and voluntary exchange. for something or as a free gift, can this
Original appropriation simply entails that the first claimant and user of a other person himself become the owner of
previously unowned good found in nature is the rightful owner of the good. such things. Unlike bodies, though, which
Put differently, if one mixes his labor with an unowned good and claims it for the same “natural” reason can never be
as his own, then he would become this good’s rightful owner. unowned and also can never be parted
It is critical that this “mixing of labor” criterion is met. Asserting with by the natural owner completely but
that a mere verbal declaration would suffice in obtaining property rights only be 'lent out' as long as the owners’
over any good would yield a host of logical and practical problems. More agreement lasts, naturally all other scarce
specifically, such "mixing of labor" for the sake of "original appropriation" resources can be 'alienated' and a property
may include the transformation, possession, and/or embordering of a title for them can be relinquished once and
scarce good. for all.32
The second just means of acquiring property is through voluntary
exchange. Voluntary exchange is a derivative of “original appropriation” in Generous use of the term “rights” has been made in this chapter.
that economic (aka scarce) goods must be captured and appropriated before Prior to moving forward, it would behoove us to examine what exactly
they can be traded or given away. Hoppe provides a cogent summary for rights are and what they entail. For this task, I will take advantage of the
the Libertarian Ethic: insight provided by Murray Rothbard:

Unlike bodies, which are never 'unowned' When we say that one has the right to do
but always have a natural owner, all other certain things we mean this and only this,
scarce resources can indeed be unowned. that it would be immoral for another,
This is the case as long as they remain in alone or in combination, to stop him from
their natural state, unused by anyone. They
only become someone’s property once
32 Hoppe, ibid, 11.
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doing this by the use of physical force or applies? More specifically, what makes someone or something a “moral
the threat thereof. We do not mean that agent?” Perhaps the ability to engage in discourse is the right criterion?
any use a man makes of his property Hoppe suggests:
within the limits set forth is necessarily a
moral use. 33 ...[O]nly if both parties to a conflict are
capable of engaging in argumentation with
It is important to expand upon the above definition in a few important one another can one speak of a moral
ways. Rights provide a framework for the justification of force. To say one problem and is the question of whether or
has a right against being coerced unjustly or being murdered implies that not there exists a solution meaningful.
the right is defensible by one's own use of force. In other words, if one's Only if Friday, regardless of his physical
rights are violated, then the use of physical force, or the threat thereof, may appearance (i.e., whether he looks like a
be justifiably employed against the perpetrator. Such measures may be used man or like a gorilla), is capable of
for either defending those rights or for seeking retribution/restitution for argumentation (even if he has shown
their violation. To be clear, this is not to say that physical force, or the himself to be so capable only once), can he
threat thereof, must be used; it is simply saying that such force would be be deemed rational and does the question
justified. This force would be reactionary, not initiatory, and hence satisfies the whether or not a correct solution to the
non-aggression principle. In the future chapters of this book, there will be problem of social order exists make
discussion regarding some non-violent means by which criminal behavior sense… Only if this other entity can in
may be effectively combated, but for now the scope of this discussion will principle pause in his activity, whatever it
be limited to identifying what the Libertarian Ethic is, how it may be might be, step back so to speak, and say
rationally justified, and what rights it entails. ‘yes’ or ‘no’ to something one has said, do
Finally, the above definition of rights should not be misconstrued we owe this entity an answer and,
so as to think that any breach of “morality” warrants the use of physical accordingly, can we possibly claim that our
force. For instance, if a man promises his girlfriend that he will take her to answer is the correct one for both parties
the movies on Saturday night, and then reneges on this promise in order to involved in a conflict.34
go out with her best friend, this act may be immoral. However, if in
response his girlfriend slashes his tires, then she would be guilty of violating In other words, the Libertarian Ethic applies to beings capable of
his property rights despite his recent unsavory act. It is important to note argumentation or of propositional exchange (discourse). However, Hoppe
the greater specificity of a discussion on “rights” as compared to “morals.” reasons that if a being is not capable of argumentation, then whether or not
All too often the topics are confused and this confusion has been used to said being is capable of recognizing the rights of others cannot be known
justify assaulting others for a great many “victimless crimes.” with certainty. (It is important to clarify that such capacity to communicate
So to be clear, from this point forward, I will be speaking in terms a proposal or to argue is not limited to verbal communication. Any form of
of “rights” and not the greater scope of “morals.” The actions of others communication would suffice and may theoretically range from physical
may offend our moral code, however we must determine which of these gestures, to telepathy, to drawings...etc.) For rights to exist between two or
actions warrant physical force and which of them are just aesthetically more beings, there needs to exist a certain degree of reciprocity. This must
displeasing. entail the ability to both recognize and deliberately respect the other’s right to
his own body and property. Such ability is the minimum criterion for one to
be considered a moral-agent.
The Criteria for Moral Agency To say that a moral agent (e.g. a mentally healthy adult human)
must not aggress against a non-moral agent (e.g. a wasp) would be to put
the non-moral agent in a position of moral superiority over the moral agent.
How do we determine to whom/what the Libertarian Ethic
34 Hans-Hermann Hoppe. "The Problem of Social Order" in Economics and Ethics of
Private Property: Studies in Political Economy and Philosophy (Boston: Kluwer
33 Rothbard, "Natural Laws and Natural Rights," in The Ethics of Liberty, 24. Academic, 1993), 5.
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For instance, the moral agent is capable of consciously respecting the NAP in conflict with these must be rejected as logically unsound. It is important
in regards to this non-moral agent. In contrast, the non-moral agent is to remember argumentation is a conflict-free exchange of ideas; it may be
incapable of deliberately respecting the NAP, and will be able to act outside as simple as a truth claim proposed by one individual to another.
its confines without being said to have violated the moral agent's rights, or The next layer of groundwork requires examining the nature of
to have committed an unethical act. The reason this non-moral agent could axioms. According to Ayn Rand, “an axiom is a proposition that defeats its
not be held ethically accountable for such actions is that, being such, it opponents by the fact that they have to accept it and use it in the process of
would have no capacity to conceptualize the NAP let alone deliberately any attempt to deny it." This definition will be pertinent when discussing
abide by it. Hans Hermann Hoppe’s argumentation ethics later in this chapter.
This has great implications in regards to so called “animal rights.” The particular axiom upon which the whole of Austrian
Really, it would be more appropriate to recognize that rights are only Economics is based is that of “Human Action.” Ludwig Von Mises defines
applicable to those beings which satisfy the minimum criterion for moral this axiom:
agency listed above. Which animals, if any, are “moral agents” as defined
above, I will leave to the zoologist. Human action is purposeful behavior. Or
In conclusion, the Libertarian Ethic is not necessarily limited to we may say: Action is will put into
humans, but applies to all moral agents be they human, extra-terrestrial, or operation and transformed into an agency,
otherwise. is aiming at ends and goals, is the ego’s
meaningful response to stimuli and to the
conditions of its environment, is a person’s
Philosophical Groundwork conscious adjustment to the state of the
universe that determines his life.35

Some additional groundwork is needed before diving into the Simply put, the axiom of action tells one that action is purposive; that
justifications of the Libertarian Ethic. Let us first examine what it means for people deliberately employ means for the sake of achieving particular ends.
an ethic or right to be “justified.” First, it must be “universalizable” or Furthermore, for anyone to act he must be doing so with the intention of
consistent. That is to say, for something to be a valid or justified ethic, it “profiting” in some manner. That is to say, if he is acting, he necessarily
must apply to all moral agents at all times and in all places. must view such actions as bringing him closer to a more preferable state of
A rule stipulating that stealing is wrong is a universalizable ethic. A affairs. This is not to say his actions will accomplish this, but rather that he
rule stipulating that stealing is permitted by people over 6 feet tall is not. believes they will. This is true necessarily, for if he felt a given action would
This introduces arbitrary distinctions between types of moral agents and take him further from his preferred state of affairs, then he would either
therefore fails the universalization test. This concept is commonly referred refrain from acting or act differently.
to as the “Golden Rule of Ethics” or the “Kantian Categorical Imperative.” This does not mean that people do not sometimes act to help
A second and more obvious criterion for an ethic or right to be others at a cost to themselves, but rather that they view such an act to yield
justified is that it must be practically achievable. If one cannot physically act more to them (in this case a feeling of personal psychic pleasure) than what
in accordance with an ethic, then the ethic is null and void. For instance, is being given up. Such psychic pleasure may also be referred to as "psychic
the proposition that occupying a physical space with one's body is profit."
unjustified is absurd because one cannot but take up standing room. An additional insight made by Austrian economists is that all value
Third and finally, for an ethic to be justified, it cannot come into is necessarily subjective. The mere fact that voluntary trades occur is
conflict with other norms which must be presupposed in the act of indicative of this truth. For example, if I buy a candy bar from you for a
discourse or argumentation. For if a proposed norm did come into conflict dollar then this demonstrates that I value the candy bar more than a dollar
with the necessary norms of argumentation, then the person proposing the whereas you value it less than a dollar, otherwise we would have never
ethic would fall into what is known as a “performative contradiction.” That bothered expending the time and energy required to make said trade in the
is to say – the person's actions would come into conflict with the proposal
he was making. To justify anything means to justify it in argumentation. As the act
of argumentation presupposes certain norms, any proposed norm that was 35 Ludwig von Mises, "Acting Man," in Human Action: A Treatise on Economics (New
Haven: Yale University Press, 1949), 11.
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first place. From this insight one may deduce that all voluntary trades must Now that the necessary groundwork has been laid, we may proceed
be seen as mutually beneficial ex ante to both parties involved, otherwise in justifying the Libertarian Ethic by means of Hoppe's "Argumentation
they would not have occurred. Ethics." Hoppe describes the nature of this approach:
The “a priori of communication/argumentation/discourse” will
serve as the final piece of groundwork (from here on in I shall refer to this It [Argumentation Ethics] only makes
concept as the “a priori of argumentation,” though “communication” and explicit what is already implied in the
“discourse” are also appropriate). Hans Herman Hoppe defines the “a priori concept of argumentation itself, and in
of argumentation:” analyzing any actual norm proposal its task
is merely confined to analyzing whether or
The argument shows us that any truth not it is logically consistent with the very
claim, the claim connected with any ethics which the proponent must
proposition that it is true, objective or presuppose as valid insofar as he is able to
valid (all terms used synonymously here), is make his proposal at all.37
and must be raised and settled in the
course of an argumentation. Since it Put differently, if one proposes an ethic which contradicts the necessarily
cannot be disputed that this is so (one presupposed ethics of discourse, then this proposed ethic must necessarily
cannot communicate and argue that one be rendered invalid by his own action (the fact that he engaged in
cannot communicate and argue), and since argumentation). Thus, the ethical norms presupposed in the making of any
it must be assumed that everyone knows proposal must themselves be the logical benchmark by which all future
what it means to claim something to be ethical proposals are evaluated. If a given ethic runs counter to the
true (one cannot deny this statement presupposed ethical norms of proposal making, then it cannot be valid.38
without claiming its negation to be true), Argumentation ethics are a logical extension of the a priori of
this very fact has been aptly called ‘the a argumentation. The purpose of any argument is to establish a proposition
priori of communication and as being true and/or justified, or conversely to show a given proposition to
argumentation.’36 be false/unjustified. Argumentation, then, is by its very nature persuasive
and non-coercive. If one were to attempt to use physical coercion in the
This fact is logically incontestable. There is no way anyone can assert course of an argument, this would undermine the intent of discovering
something to be true without making an argument – for the very act of truth or falsehood, thereby precluding such an act from being compatible
asserting something to be true is itself an argument. Furthermore, one with argumentation. As such, for someone to engage in argumentation with
cannot coherently claim not to know what truth is, for in so doing he is another would require an implicit acceptance that the other party has the
claiming that it is true that he does not know what it means for something right to exclusive control over his own body.
to be true. Thus, our actor finds himself in a performative contradiction. It To demonstrate this, let us assume that one does not recognize the
may be concluded, then, that for one to make any argument, it must first be other’s exclusive control over his own body, and proceeds to slap him in
presupposed that he understands the concepts of truth and validity and that the face when confronted with a point he is unable to counter. This
a given proposition may only be shown as such in the course of an coercive act would immediately end the argument and begin violent
argument. conflict. To reinforce this fact, let us assume that one of our interlocutors
does not hit the other, but rather threatens to assault him if he does not
concede. Again, this act of coercion falls outside the realm of
Justifying The Libertarian Ethic argumentation as it undermines the goal of discovering a truth or a

37 Hoppe, ibid, 315.

38 To clarify, when the term "ethic" is brought up in this book, it will more specifically
be referring to interpersonal ethics, which are intimately related with “rights.” For
36 Hoppe, "From the Economics of Laissez Faire to the Ethics of Libertarianism" in instance, if I have a “right” to do something, it would be considered unethical for
Private Property, 314. you to attempt to stop me from doing it via aggressive means.
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falsehood by substituting conflict for resolution. Now, any person participating in any sort
By establishing as a precondition of argumentation the mutual of discussion including one on values, is,
recognition and acceptance of each party's agency, the principle of self- by virtue of so participating, alive and
ownership has been justified a priori. Thus, it may be concluded that any affirming life. For if he were really opposed
proposition(s) which conflict(s) with the principle of self-ownership cannot to life, he would have no business
be coherently justified. For the sake of thoroughness, I will proceed to run continuing to be alive. Hence, the supposed
the principle of self-ownership through a Justification Schema. opponent of life is really affirming it in the
very process of discussion, and hence the
1. Is it universalizable? Yes. The principle of self-ownership states preservation and furtherance of one’s life
that every moral agent, without exception, is the sole and takes on the stature of an incontestable
legitimate owner of his body. axiom.40
2. Is it practically achievable? Yes. Every moral agent has the capacity
to own his body. This argument should not be misconstrued as saying that people are entitled
3. Is it compatible with the necessary presuppositions of to having a particular set of scarce resources, but rather that it is within
argumentation? Yes. In fact, the principle of self-ownership is a their right to own them provided that they are acquired via just means. The
necessary presupposition of argumentation. distinction here may seem trivial but the implications are vastly different.
For instance, if one is entitled to a particular resource, this would mean that
Next, I will provide a justification for the private ownership of he would have a right to it and that if this right is not fulfilled, then physical
external economic goods. Hoppe explains lucidly: force or the threat thereof would be justified in either fulfilling it or seeking
retribution for its violation.
I first demonstrate that argumentation, and This is what is known as a positive right. For a positive right to be
argumentative justification of anything, fulfilled, someone is required to take an action in order to fulfill it. For
presupposes not only the right to example, if I had a right to healthcare, this would oblige someone else to
exclusively control one’s body but the right provide this service to me or to at least provide me with the funds necessary
to control other scarce goods as well, for if to purchase it. Thus, “positive rights” necessarily conflict with private
no one had the right to control anything property rights, as they limit to some degree a person’s right to exclusive
except his own body, then we would all control over his own body or external property.
cease to exist and the problem of justifying In contrast, having the right to own something simply entails that
norms – as well as all other human others may not commit aggression against this owned good or make threats
problems – simply would not exist. We do thereof. For that to be fulfilled requires no action taken on the part of
not live on air alone; hence, simply by anyone else. These types of rights are known as “negative rights.” In
virtue of the fact of being alive, property contrast to positive rights, negative rights simply preclude others from taking
rights to other things must be presupposed certain actions, whereas positive rights oblige others to act. Finally, the
to be valid, too. No-one who is alive could validity of the private ownership over external economic goods will be
argue otherwise.39 verified by running it through the justification schema:

A practical precondition for argumentation is that the actors involved are 1. Is it universalizable? Yes. The right to own external economic
alive. To be alive, and to even argue, requires the right to exclusively control goods is shared by all moral agents and can thus claim to satisfy
and consume external resources. Naturally, one must also have the right to the test of universalization.
occupy a given amount of physical space with his body before he may be 2. Is it practically achievable? Yes, everyone has the capacity to own
able to argue at all. Rothbard supplements this argument: external economic goods or scarce resources at all times.
3. Is it compatible with the necessary presuppositions of

39 Hoppe, ibid, 321 40 Rothbard, "A Crusoe Social Philosophy," ibid, 32-33.
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argumentation? Yes. In fact, the right to own external scarce to say that property is acquired not
resources is a necessary precondition of argumentation. through homesteading action but through
declaration involves a practical
In light of the above proofs for the principle of self-ownership and contradiction: nobody can say and declare
the right to own external property, one may deduce that the Non- anything, unless his right to use his body is
Aggression Principle (NAP) must also be valid. To further demonstrate the already assumed to be valid simply because
validity of the NAP we will run it through the justification schema: of the very fact that regardless of what he
says, it is he, and nobody else, who has
[Link] it universalizable? Yes, the NAP condemns uninvited initiations homestead it as his instrument of saying
of physical force against all moral agents and their property. anything.41
[Link] it practically achievable? Yes, everyone has the capacity to refrain
from committing aggression against others or their property at The argument Hoppe uses here is known as an argumentum a
all times. contrario. This is an argument type that entertains the possible alternatives to
[Link] it compatible with the necessary presuppositions of a given proposal to demonstrate how they are either invalid or less suitable
argumentation? Yes, in fact the NAP is a necessary for a particular end. In this case, Hoppe demonstrates how the alternatives
presupposition of argumentation. to original appropriation/homesteading must be in conflict with the
principle of self-ownership, and by extension the necessary presuppositions
Original appropriation (aka homesteading) and voluntary exchange of argumentation. The alternatives fail the third step of the justification
are the only two legitimate means of acquiring property. Hoppe has this to schema. Moreover, unlike the “first user” homesteading rule, such a
say: declarative alternative creates the possibility for multiple people to lay claim
to a given scarce resource at the same time. With homesteading, however,
If a person did not acquire the right of the laws of physics do not permit two bodies (human) to occupy the same
exclusive control over other, nature-given space at the same time so only one person has the capacity to mix his labor
goods by his own work, that is, if other with a given resource first. It is this mutually exclusive characteristic of space
people, who had not previously used such occupation that permits the homesteading theory to avoid any possible
goods, had the right to dispute the violent conflict where two or more claimants have equally valid claims to a
homesteader’s ownership claim, then this given good or area of land. Again, if verbal declarations were in themselves
would only be possible if one would considered sufficient to acquiring title over property, then anyone could
acquire property titles not through labor, simply make a competing claim against a given piece of property and
i.e., by establishing some objective link propose that his evidence of ownership over said property is equally
between a particular person and a legitimate to the currently recognized owner. Thus, any future rulings over
particular scarce resource, but simply by competing claims of property would ultimately have to be offered on the
means of verbal declaration. This solution basis of arbitrary criteria. Alternatively, if a judge decided not to rule in
– part from the obvious fact that it would favor of one party over another (because as we said the declaration in itself
not even qualify as a solution in a purely was sufficient in acquiring rights over property), then the number of parties
technical sense in that it would not provide having title to specific economic goods would increase drastically, thereby
a basis for deciding between rivaling increasing the likelihood that multiple parties will attempt to use the good(s)
declarative claims – is incompatible with in question in mutually exclusive ways. Because there would be no way to
the already justified ownership of a person arbitrate between mutually exclusive plans for the same good, such a
over his body. For if one could indeed situation would only serve to generate conflict thereby defeating the very
appropriate property by decree, this would purpose of establishing a property norm – i.e., to serve as a conflict
imply that it would also be possible for one avoidance/dispute resolution mechanism.
to simply declare another person’s body to
be one’s own. However, as we have seen,
41 Hoppe, ibid, 336.
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Perhaps one may then object: “Why does the first late that one could never possibly ask
appropriator/homesteader get the stuff? Why not some late-comer?” If them—advocating a legal system that does
economic goods were able to be owned by some unknown person who may not make use of the prior-later distinction
arrive in the future to claim them, then no one could act without infringing as part of its underlying property theory is
on the property rights of these future-comers. We would all be paralyzed, simply absurd in that it implies advocating
lest we violate the property rights of said future-comers. Thus, to reject the death but must presuppose life to advocate
first-user ethic would be to put the nail in our own coffins. No economic any thing. Neither we, our forefathers, nor
goods could be consumed in the present for doing so would deny said good our progeny could, do, or will survive and
to future-comers. Because this particular proposal would render its say or argue anything if one were to follow
followers dead, it must be considered invalid. Moreover, the practical this rule. In order for any person—past,
requirement for an effective property norm is that it enables objective present, or future—to argue anything it
arbitration between competing claims to a given scarce resource. Such must be possible to survive now. Nobody
arbitration is intended to confer rightful ownership to that party which may can wait and suspend acting until everyone
demonstrate a “superior objective link” between himself and the good in of an indeterminate class of late-comers
question. If someone is a first user of a scarce resource, then by definition happens to appear and agree to what one
he is the only one who could have any objective link to it at all. Thus, being wants to do. Rather, insofar as a person
the only one with such a link, it is necessarily superior to all others. With finds himself alone, he must be able to act,
this being the case, any future-comer may only establish such a link with the to use, produce, consume goods
disputed resource by violating the first user’s previously established straightaway, prior to any agreement with
property right to the good. people who are simply not around yet (and
The very purpose of ethics and norms is to help avoid otherwise perhaps never will be). And insofar as a
unavoidable conflict. To say a latecomer or a “possible-future-comer” is the person finds himself in the company of
rightful owner of a given good would only serve to generate conflict between others and there is conflict over how to
the first and late comer(s), and would therefore be completely contrary to use a given scarce resource, he must be
the very purpose of a norm. Thus, the only ethic or norm which would able to resolve the problem at a definite
serve to avoid conflict would be to grant a given scarce good to its first point in time with a definite number of
user. This would be inherently conflict-free, because by definition there people instead of having to wait
would be no valid competing claims. Hoppe elaborates on this first-user unspecified periods of time for unspecified
necessity: numbers of people. Simply in order to
survive, then, which is a prerequisite to
What is wrong with this idea of dropping arguing in favor of or against anything,
the prior-later distinction as morally property rights cannot be conceived of as
irrelevant? First, if the late-comers, i.e., being timeless and nonspecific regarding
those who did not in fact do something the number of people concerned. Rather,
with some scarce goods, had indeed as they must necessarily be thought of as
much of a right to them as the first- originating through acting at definite
comers, i.e., those who did do something points in time for definite acting
with the scarce goods, then literally no one individuals.42
would be allowed to do anything with
anything, as one would have to have all of An alternative argument put forth by Hoppe:
the late-comers’ consent prior to doing
whatever one wanted to do. Indeed, as
posterity would include one’s children’s
children—people, that is, who come so 42 Hoppe, "The Socio-Psychological Foundations of Socialism or the Theory of the
State" in Socialism and Capitalism, 170.
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If a person A were not the owner of his a human ethic either.43

physical body and all goods originally
appropriated, produced or voluntarily The first ethic clearly fails the universalization test and therefore we need
acquired by him, there would only exist not go any further. However, it is important to note that this ethic is also
two alternatives. Either another person, B, incompatible with the third criterion of the justification schema, which
must then be regarded as the owner of A, states that any valid ethic must be consistent with the presupposed ethical
or both parties, A and B, must be regarded norms required for engaging in argumentation. In this case, it would
as equal co-owners of both bodies and conflict with the principle of self-ownership.
goods. Next is the scenario where "everyone owns an equal share of
everything, to include the bodies of one another."
In the first case, A would be B’s slave and
subject to exploitation. B would own A 1. Is this universalizable? Yes. This ethic proposal does indeed pass
and the goods originally appropriated, the universalization test as “everyone owns everything” does not
produced, or acquired by A, but A would entail distinctions among moral agents.
not own B and the goods homesteaded, 2. Is this practically achievable? No. Acting according to this norm
produced, or acquired by B. With this rule, would be impossible. Not only would acquiring the prior approval
two distinct classes of people would be of all seven billion people on earth be virtually impossible in itself,
created-exploiters (B) and exploited (A)-to but no one person could even give permission in the first place, as
whom different “law” would apply. Hence, giving permission is itself an action requiring the use of scarce
this rule fails the “universalization test” resources. As each person needs everyone else's approval in order
and is from the outset disqualified as even to utilize communal resources, each of them would need everyone
a potential human ethic, for in order to be else's approval simply in order to give approval. Thus, this norm
able to claim a rule to be a “law” (just), it is falls victim to the logical quagmire of infinite regression, thereby
necessary that such a rule be universally- prohibiting all actors from acting at all! Any attempt to follow this
equally-valid for everyone. norm would lead to a speedy death.
3. Is this compatible with the necessary presuppositions of
In the second case of universal co- argumentation? No, as it conflicts with the principle of self-
ownership, the requirement of equal rights ownership which asserts that everyone is the exclusive owner of his
for everyone is obviously fulfilled. Yet this or her own body. If everyone owned an equal share of everyone
alternative suffers from another fatal flaw, else's body, then no one would have right to exclusive control over
for each activity of a person requires the his own body. It also conflicts with the right to exclusively own
employment of scarce goods (at least his external property, which is a necessary precondition of life, and life
body and its standing room). Yet if all a necessary precondition to being able to put forth any argument.
goods were the collective property of
everyone, then no one, at any time and in Now that the alternatives have been shown to fail the justification
any place, could ever do anything with schema, let us see if the acts of acquiring property via original appropriation
anything unless he had every other co- and voluntary exchange suffer the same or a different fate:
owner’s prior permission to do what he
wanted to do. And how can one give such 1. Are they universalizable? Yes, the requirement for one to use either
a permission if one is not even the sole original appropriation or voluntary exchange to justly acquire
owner of one’s very own body (and vocal property applies to all moral agents.
chords)? If one were to follow the rule of
total collective ownership, mankind would
die out instantly. Whatever this is, it is not 43 Hans-Hermann Hoppe, introduction to The Ethics of Liberty by Murray N. Rothbard
(New York: New York University Press, 1998), xvi-vii.
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2. Are they practically achievable? Yes, everyone has the capacity to justified. He summarizes the point thusly:
acquire property over scarce goods through original appropriation
or voluntary exchange. 'So what? Why should an a priori proof of
3. Are they compatible with the necessary presuppositions of the libertarian property theory make any
argumentation? Yes, in fact they are corollaries of such difference? Why not engage in aggression
presuppositions. anyway?' Why indeed?! But then, why
should the proof that 1+1=2 make any
difference? One certainly can still act on
Common Objections to Argumentation Ethics the belief that 1+1=3 . The obvious
answer is “because a propositional
justification exists for doing one thing, but
At this point, critics may object on the basis of Hume's fact-value not for doing another.” But why should we
dichotomy (otherwise known as the “is-ought problem”). Formulated by be reasonable, is the next comeback.
David Hume, this perspective states that one cannot derive an ought from an Again, the answer is obvious. For one,
is. Normative claims – that is, claims regarding how things should be – cannot because it would be impossible to argue
be derived from explanations from how the world is – otherwise known as against it; and further, because the
descriptive claims. Critics of Hoppe's perspective will often attribute proponent raising this question would
normative positions to his libertarian argument; they understand his already affirm the use of reason in his act
argumentation ethics as saying that nobody should commit aggression. of questioning it. This still might not
However, raising this objection indicates a misunderstanding of Hoppe's suffice and everyone knows that it would
proposal, as he does not claim to derive an “ought” from any “is.” not, for even if the libertarian ethic and
Argumentation ethics merely identifies which ethical propositions are argumentative reasoning must be regarded
logically sound or justifiable, and which ones are not. Hoppe defends as ultimately justified, this still does not
himself from these assertions: preclude that people will act on the basis
of unjustified beliefs either because they
It [Hoppe's style of argumentation ethics] don't know, they don't care, or they prefer
remains entirely in the realm of is- not to know. I fail to see why this would
statements and never tries to derive an be surprising or make the proof somehow
‘ought’ from an ‘is.’ The structure of the defective. More than this cannot be done
argument is this: (a) justification is by propositional argument.45
propositional justification-a priori true is-
statement; (b) argumentation presupposes
property in one’s body and the The Implications of the Libertarian Ethic
homesteading principle-a priori true is-
statement; and (c) then, no deviation from
this ethic can be argumentatively justified-a One of the shocking implications of the Libertarian/Private
priori is statement.44 Property ethic is that it is not logically compatible with the State. The State
is defined as:
The truth of Hoppe's argument is unaltered by one's willingness or
unwillingness to abide by it. Whether or not man accepts the Libertarian ... That organization in society which
Ethic as valid or justified has no bearing on whether or not it is valid and attempts to maintain a monopoly of the
use of force and violence in a given

44 Hoppe, "On the Ultimate Justification of the Ethics of Private Property" in Private
45 Hoppe, ibid, 407-408.
Property, 345.
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 A SPONTANEOUS ORDER LIBERTARIANISM

territorial area; in particular, it is the only add insult to injury, most people do not directly enjoy the benefits of all the
organization in society that obtains its so called “services” they are forced to fund via taxes. (e.g. one who has no
revenue not by voluntary contribution or children having to pay taxes which go towards public elementary
payment for services rendered but by schools...etc.)
coercion. While other individuals or Finally, the State exercises jurisdiction over a given territory despite
institutions obtain their income by the the fact that its agents have not acquired property rights over it through
production of goods and services and by legitimate means, i.e., via original appropriation or voluntary exchange. This
the peaceful and voluntary sale of these clearly indicates that the State’s claim of authority over this geographical
goods and services to others, the State area is unfounded. Only the legitimate owners of a given piece of property
obtains its revenue by the use of may exercise jurisdiction over it and may determine the rules under which
compulsion; that is, by the use and the its residents may live. Simply put, if one does not homestead a thing/space
threat of the jailhouse and the bayonet.46 or acquire it through voluntary exchange, then he has no just authority over
the people who occupy or have themselves homesteaded said thing/space.
The first characteristic of the State is that it exercises a territorial monopoly of
ultimate decision-making. The State, as final arbiter of disputes, does not
allow the verdict of competing arbitration agencies to supersede its own. By
definition, any uninvited initiation of physical force or the threat thereof
against the persons or property of others is condemned by the NAP. Thus,
the State’s status as “ultimate arbiter,” and the means by which it is
enforced, are illegitimate and unjustified.
The State's supposed legal "right" to lay taxes is also incompatible
with the NAP. Taxes require people to surrender their earnings to the State
despite an individual’s lack of genuine consent. Thus, because taxation
amounts to taking one's property against his will via aggressive means, it
must be considered theft. To illustrate, one's refusal to pay taxes ultimately
leads to arrest and imprisonment. If one decides to resist such an arrest, the to protect him, and demand payment of him, without his having ever made any
agents of the State will not hesitate to assault or murder this person.47 To contract with them, say to him that that, too, is our business, and not his; that we do
not choose to make ourselves individually known to him; that we have secretly (by
secret ballot) appointed you our agent to give him notice of our demands, and, if he
46 Murray N. Rothbard, "Anatomy of the State" in Egalitarianism as a Revolt against complies with them, to give him, in our name, a receipt that will protect him against
Nature, and Other Essays, 57. Washington, D.C.: Libertarian Review, 1974. See, any similar demand for the present year. If he refuses to comply, seize and sell
where Schumpeter says in Capitalism, Socialism, and Democracy: “The friction or enough of his property to pay not only our demands, but all your own expenses and
antagonism between the private and the public sphere was intensified from the first trouble beside. If he resists the seizure of his property, call upon the bystanders to
by the fact that. . . the State has been living on a revenue which was being produced help you (doubtless some of them will prove to be members of our band.) If, in
in the private sphere for private purposes and had to be deflected from these defending his property, he should kill any of our band who are assisting you, capture
purposes by political force. The theory which construes taxes on the analogy of club him at all hazards; charge him (in one of our courts) with murder; convict him, and
dues or of the purchase of the service of, say, a doctor only proves how far removed hang him. If he should call upon his neighbors, or any others who, like him, may be
this part of the social sciences is from scientific habits of mind.” See also, Murray N. disposed to resist our demands, and they should come in large numbers to his
Rothbard, “The Fallacy of the ‘Public Sector,”’ New Individualist Review (Summer, assistance, cry out that they are all rebels and traitors; that “our country” is in
1961): 3ff. danger; call upon the commander of our hired murderers; tell him to quell the
47 Lysander Spooner explains the practice of taxation in No Treason: The Constitution rebellion and “save the country,” cost what it may. Tell him to kill all who resist,
of No Authority, 1867, Ch. III: “Go to A_____ B_____, and say to him that “the though they should be hundreds of thousands; and thus strike terror into all others
government” has need of money to meet the expenses of protecting him and his similarly disposed. See that the work of murder is thoroughly done; that we may
property. If he presumes to say that he has never contracted with us to protect him, have no further trouble of this kind hereafter. When these traitors shall have thus
and that he wants none of our protection, say to him that that is our business, and not been taught our strength and our determination, they will be good loyal citizens for
his; that we choose to protect him, whether he desires us to do so or not; and that we many years, and pay their taxes without a why or a wherefore... It is under such
demand pay, too, for protecting him. If he dares to inquire who the individuals are, compulsion as this that taxes, so called, are paid.”
who have thus taken upon themselves the title of “the government,” and who assume
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determine in which context violent recourse is justified, and in which

context it is not. In other words, violence used as a response to that which
is merely distasteful but not aggressive, is, and must always be, unjustified.
Naturally, the question you may be asking yourself is “how do we
Chapter Two distinguish between ethics and aesthetics?” The answer is by formulating a
rational theory of property. However, before we expound upon such a
theory, let us first reflect upon the function and purpose of having a theory
PROPERTY of property in general. Hoppe explains his meta-ethical position:

Only because scarcity exists is there even

AT THE CORE of every political theory is a methodology for the a problem of formulating moral laws;
assignment of property rights. In fact, this must be so; for in order to insofar as goods are superabundant
determine the aggressor and victim in any violent interpersonal conflict, one (“free” goods), no conflict over the use of
requires some theoretical basis for determining who owns the good in goods is possible and no action-
contention (this good in contention may include one's very own body). If coordination is needed. Hence, it follows
the source of conflict does not concern a dispute regarding the control of a that any ethic, correctly conceived, must
scarce resource, then said conflict would fall outside the scope of property be formulated as a theory of property, i.e.,
norms. The distinguishing factor between conflicts which involve a dispute a theory of the assignment of rights of
over the rightful control of scarce resources and those which do not is that exclusive control over scarce means.
the employment of violence may be a just means to reconcile the former Because only then does it become
type of conflict, however such violence would never be warranted when possible to avoid otherwise inescapable
addressing the latter. and unresolvable conflict.48
For instance, if I take a mango from you, whether or not this is an
act of aggression (as defined by the NAP) is entirely dependent upon who In other words, the function of a theory of property is to provide a means
actually owns the mango. If you picked this mango from my yard without to determine the just acquisition and transfer of property. That is to say, to
my consent, then my seizing it would be just. However, if you bought this determine who gets what.
mango at the store, or picked it from your own mango tree, then my seizing In essence, the core of many conflicts between individuals is a
it would be unjust and would constitute an act of aggression against your dispute over the use and control of some scarce (economic) good. This
property. Thus, a theory of property is integral to any objective system of could be a bowling ball, money, land, a factory, etc. It is because we live in
interpersonal ethics. Without such a theory, all attempts to resolve such an environment where the desire for many resources exceeds their
disputes would ultimately be arbitrary, and in all likelihood unjust. availability that we must apply some arrangement of property laws if we
Of course, the characterization made above is contingent upon wish to mitigate and resolve violent conflict amongst individuals. As only
accepting the libertarian theory of property. If one used a more collectivist those goods which are scarce can be the objects of violent conflict, non-
theory of property, then it may very well be the case that the role of victim rivalrous goods are not subject to ownership claims. Therefore, we may
and aggressor would be the reverse. conclude that the concept of “property” may only be applicable to that
To use another example, the libertarian principle of “self- which is scarce and rivalrous. Tucker and Kinsella dispel some common
ownership” would condemn rape as being an unjust act, not because of the misconceptions of what it means for something to be scarce:
aesthetics of rape (or the lack thereof), but rather because the rapist has
infringed upon the victim’s property right over his/her body. However, if But let's be clear what we do not mean by
our theory of property permitted someone to own another person, as is the the term scarce in the sense that it applies
case with chattel slavery, then this same act would be considered a justified to this discussion. Something can have
exercise of one’s property right over his slave. zero price and still be scarce: a mud pie,
It is important to keep in mind the distinction between “ethics”
and “aesthetics.” We must be careful not to conflate the two as is so often
done. The practical significance behind such a distinction is the ability to 48 Hoppe, Socialism and Capitalism, 158.
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 A SPONTANEOUS ORDER PROPERTY

soup with a fly in it, a computer that property, as no conflict over them may possibly arise. Thus, only scarce
won't boot. So long as no one wants these (economic) goods may warrant the application of property norms to govern
things, they are not economic goods. And their usage. Jeffrey Tucker and Stephan Kinsella expound further upon
yet, in their physical nature, they are rivalry and scarcity as being the essential elements of property:
scarce because if someone did want them,
and they thus became goods, there could Instead, the term scarcity here refers to
be contests over their possession and use. the possible existence of conflict over the
They would have to be allocated by either possession of a finite thing. It means that
violence or market exchange based on a condition of contestable control exists
property rights. for anything that cannot be
simultaneously owned: my ownership and
Nor does scarcity necessarily refer to control excludes your control... An
whether a good is in shortage or surplus, example of a necessarily non-scarce good
nor to whether there are only a few or is a thing in demand that can be replicated
whether there are many. There can be a without limit, so that I can have one, you
single "owner" of a non-scarce good (a can have one, and we can all have one.
poem I just thought of, which I can share This is a condition under which there can
with you without your taking it away from be no contest over ownership. As Hoppe
me) or a billion owners of scarce goods says, under these conditions, there would
(paper clips, which, despite their ubiquity, be no need for (property) norms
are still an economic good). governing their ownership and use... This
non-scarce status might apply to many
Nor does scarcity necessarily refer to things but it always applies to non-finite
tangibility only, to the ability to physically things, that is, goods that can be copied
manipulate the thing, or to the ability to without limit, with no additional copy
perceive something with the senses; having displaced the previous copy and
airspace and radio airwaves are intangible with no degradation in the quality of the
scarce goods and therefore potentially copied good from the original good... So
held as property and therefore priced, it is with all things: if there is a zero-sum
while fire is an example of a tangible good contest over its possession, it is scarce; if
of potentially unlimited supply.49 there need not be rivalry over its
ownership, and its capacity for copying
What indicates the rivalrous or non-rivalrous nature of something and sharing is infinite, it is non-scarce...50
is whether use of it inhibits future use or another's simultaneous use. That is
to say, if my use of something X precludes any other use of that same Property, necessarily being comprised of scarce, rivalrous goods,
something X, then X is rivalrous. Conversely, if my use of something X requires acquisition. The concept of property is only coherent or relevant
does not preclude any other use of X, and if my use of X does not subtract with the acquisition and use of scarce resources. According to libertarian
from any future use of X, then X is not rivalrous, and could therefore never theory, there are exactly two just means of acquiring property:
achieve the status of “property.” Moreover, because property is only
applicable to goods or things which have the capacity for mutually exclusive • Original Appropriation (i.e., homesteading/first user)
usage, then those things which are super abundant cannot be considered • Voluntary Exchange (i.e., giving, trading, buying, selling, etc.)
49 Kinsella, Stephan, and Jeffrey Tucker, "Goods, Scarce and Nonscarce" (editorial
published at Ludwig Von Mises Institute, Auburn, Alabama, August 25, 2010).
50 Kinsella and Tucker, “Goods, Scarce and Nonscarce.”
[Link]/daily/4630.
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 A SPONTANEOUS ORDER PROPERTY

A common objection to the practicality of the "original

appropriation" means of acquiring property is that hardly any person is able Intellectual Property
to trace the ownership of land to the time when it was originally
appropriated. As such, whether or not the chain of title to a good is
legitimate can be impossibly difficult to ascertain. Rothbard trenchantly Intellectual property (IP) is a classification given to the class of
answers this concern: legally-protected rights to non-scarce goods – such as ideas, music, and the
expression of patterns. The three most common categories of intellectual
It might be charged that our theory of property are copyrights, patents, and trademarks. In his monograph
justice in property titles is deficient “Against Intellectual Property,” Stephan Kinsella provides a cogent
because in the real world most landed definition of each of the categories of intellectual property:
(and even other) property has a past
history so tangled that it becomes
impossible to identify who or what has Copyright
committed coercion and therefore who Copyright is a right given to
the current just owner may be. But the authors of ‘original works,’ such as books,
point of the “homestead principle” is that articles, movies, and computer programs.
if we don’t know what crimes have been Copyright gives the exclusive right to
committed in acquiring the property in reproduce the work, prepare derivative
the past, or if we don’t know the victims works, or to perform or present the work
or their heirs, then the current owner publicly. Copyrights protect only the form
becomes the legitimate and just owner on or expression of ideas, not the underlying
homestead grounds. In short, if Jones ideas themselves.52
owns a piece of land at the present time,
and we don’t know what crimes were Patent
committed to arrive at the current title, A patent is a property right in
then Jones, as the current owner, inventions, that is, in devices or processes
becomes as fully legitimate a property that perform a ‘useful’ function. A new or
owner of this land as he does over his improved mousetrap is an example of a
own person. Overthrow of existing type of device which may be patented. A
property title only becomes legitimate if patent effectively grants the inventor a
the victims or their heirs can present an limited monopoly on the manufacture,
authenticated, demonstrable, and specific use, or sale of the invention. However, a
claim to the property. Failing such patent actually only grants to the patentee
conditions, existing landowners possess a the right to exclude (i.e., to prevent others
fully moral right to their property.51 from practicing the patented invention); it
does not actually grant to the patentee the
Finally, to own something means to have the exclusive right to employ this right to use the patented invention.53
good in any way one sees fit, so long as such employment does not entail
aggression against the property of another. As a practical matter, property
must have objectively verifiable borders if one wishes to demonstrate the
validity of his title.
52 Stephan Kinsella, "Property Rights: Tangible and Intangible," in Against Intellectual
51 Murray N. Rothbard, "Justice and Property Rights," in Property in a Humane Property. (Auburn: Ludwig Von Mises Institute, 2008), 10.
53 Kinsella, Against Intellectual Property, 10.
Economy, Edit. Samuel L. Blumenfeld (Lasalle: Open Court, 1974), 121.
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 A SPONTANEOUS ORDER PROPERTY

themselves neither rivalrous nor scarce. Once discovered or created, their

Trademark production is inexhaustible; they are “free goods” for which neither
A trademark is a word, phrase, ownership nor economization is needed.
symbol, or design used to identify the Though the coexistence of intellectual property with legitimate
source of goods or services sold, and to property is conceptually incoherent, it would nonetheless behoove us to go
distinguish them from the goods or over some of the common assertions made in favor of IP:
services of others. For example, the Coca-
Cola® mark and the design that appears I own my labor and that which I create, including intellectual products,
on their soft drink cans identifies them as therefore IP is valid!
products of that company, distinguishing
them from competitors such as Pepsi ®. This is a point that is brought up quite often, and has proven to be
Trademark law primarily prevents very misleading. In the first place, one does not “own” his labor, for labor
competitors from “in-fringing” upon the is just something you do and not a thing to be owned. It is true you do own
trademark, i.e., using “confusingly your body, and you can use your body for labor if you wish, but it is the
similar” marks to identify their own body that is owned, not the labor. Thus, what grants one the right to sell his
goods and services. Unlike copyrights and services is the ownership he has over his body not his labor.
patents, trademark rights can last In the second place, creation itself is not sufficient in establishing
indefinitely if the owner continues to use property rights. For example, if I go to your house and use your ingredients
the mark.54 to create a cake, I do not thereby own the resulting cake with the attendant
ability to repel those who invade upon it! If I make a cake with my own
Intellectual property (IP) is a concept that entails granting the "creator" ingredients, I do not own the resulting cake because I “made it,” but rather
exclusive rights over particular patterns of information, be they a process, because I owned the materials used for its creation. Again, we only own
design, picture, painting, song, book, or logo. It must be understood that that which we originally appropriate or receive through voluntary exchange.
these so called “IP rights” do not grant to a given creator the permission to Further, the term “creation” itself is a bit misleading, for we never
reproduce original works; rather, they grant them the legal authority to actually create anything. Rather, we transform matter that is already in
prevent others from replicating these original works with their own existence into a form that we find to be more suitable to our ends. The
property. right to own “created goods” must finally rely on them being scarce; there
For instance, under a system of intellectual property, if one were to must be a possibility to use these goods in incompatible ways if they are to
patent a go-kart design, and the next day he discovered that you were be ownable.
building a go-kart to the very same specifications that he had just patented,
then he would be able to legally threaten to have force initiated against you But wouldn’t using someone else’s creation without his permission be theft?
as a means to halt your go-kart production. The fact that you would have
been building this go-kart with your own supplies would be immaterial. This is a very common misconception, even within the libertarian
Herein lies the logical issue with upholding IP: that the movement. This idea pervades our culture with common phrases like “you
enforcement of such rights necessarily results in the delimiting of stole my idea!” or “you pirated my music!” Whether or not something may
someone's rights over his legitimate (scarce) property. Rights believed to be stolen is contingent upon whether or not it can be owned, as stealing is
exist by IP proponents come into conflict with rights to legitimate property. the unjustified taking of someone’s owned goods. It has already been
Thus, we know on the outset that the coexistence or compatibility of “IP established that patterns of information are not “ownable” since they are
rights” with legitimate property rights may not be coherently defended. neither rivalrous nor scarce. What cannot be owned cannot be stolen.
Moreover, the goods to which intellectual property rights are Beyond this, stealing requires the legitimate owner to no longer
asserted fail to meet the criteria for property because a structure of IP rights have access to that which has been stolen. If I take your car, you no longer
attempts to grant ownership over patterns of information which are have access to your car. However, if I copy your recipe, your access to your
recipe has in no way been impeded by my copying. You still possess this
recipe. It just so happens that now I, too, have the recipe. No theft has
54 Kinsella, ibid, 12.
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 A SPONTANEOUS ORDER PROPERTY

taken place. It would be absurd for me to accuse you of stealing my car if it reproduction of exact replicas, but rather the reproduction of that which is
were sitting in my driveway and you just happened to build one yourself too similar to the original. So let’s say I take your go-kart design and make
with the same design. Similarly, it would be equally preposterous to assert some small improvements to it. I could still be sued under IP law for patent
that copying is stealing, when the supposed “victim’s” access to that which infringement. So, the limitations, whether they are the threshold for similarity or the
he claims has been stolen has in no way been diminished. longevity of the IP in question, must always be arbitrary.
Above and beyond this are the time, resources, and energy spent
If someone profits from my idea without my permission, then the money on the training and employment of the overseers of an IP system, as well as
he made is essentially money he has stolen from me! the time and money used to apply for a copyright or patent. These are all
factors which, had it not been for the IP system, could have gone into
Often times a musical artist or an inventor will claim that the products or services actually demanded by the consumer.
unpermitted reproduction of his music or invention will dig into his profits, The threat and practice of litigation associated with the
because such reproduction would yield a larger supply of the good in enforcement of IP laws create further costs. Such lawsuits have cost many
question relative to his monopoly production. This addition to supply thus millions to conduct and many millions more are used to keep legal teams on
renders him unable to sell his music or invention for as much as he would staff for larger businesses. Again, this represents huge amounts of resources
have otherwise been able. His belief that this unauthorized reproduction and time that could have been spent in more productive ways, but are
and sale is tantamount to theft would suggest that he owns the buyers’ instead wrapped up in the legal system.
money before they hand it over to him. This is, of course, fallacious A less obvious cost of the IP system is the chilling effect it has on
reasoning. small businesses. There are thousands upon thousands, if not millions, of
We only have legitimate claim to that which we originally patents and other IP certifications of which one may never be apprised and
appropriate or receive through voluntary exchange. We do not own yet will still be subject to a forfeiture of his liberties if he is found to be in
someone’s money before he gives it to us. The fact that a customer may violation of any one of them. Powerful corporations have the advantage of
have given his money to the original artist had he not purchased a product being able to afford a legal team to keep on staff to secure many hundreds
from a copycat does not change this fact. Furthermore, one is not entitled of IP certifications, be they patent or copyright, and to use them as leverage
to and does not own the value of something. For example, if my neighbor against other large businesses to deter them from suing on the grounds of
refuses to mow his lawn, the value of my property may be reduced in the IP infringement. This tactic is tantamount to a “mutually assured
eyes of most people, but this in no way means that my neighbor has destruction” defense, where one company will refrain from suing the other
infringed on my property rights. Again, no one has legitimate claim over the on the grounds of IP infringement for fear that this other company may sue
value of anything, because value is simply a subjective determination and we them in return and on similar grounds.
certainly do not own the subjective determinations or evaluations of others. Smaller businesses, however, do not have the capital to build up
such a defense or gain such leverage, so they are at an artificial disadvantage
If there is no IP system, people won’t be as incentivized to create and in the battle for IP weapons as compared to their larger counterparts.
innovate! Worse yet, many may decide to abandon their plans for entrepreneurship,
as IP liabilities would constitute one more cost that they are simply
While the claim has a plausible ring to it, it is dubious at best. The unwilling to bear.
IP system actually serves to suppress ingenuity! But how is this? Well, Last, but certainly not least, are the guaranteed sacrifices of liberty
because as a creator of any sort, one would immediately experience associated with the IP system. To enforce IP is to limit, at least to some
limitations upon what information he would be permitted to use in pursuit degree, an innocent person's peaceful use of his property. Those who
of his invention, song, or whatever else he is attempting to create. In other advocate for IP on purely utilitarian grounds would do well to recognize
words, the suppression of innovation would take the form of all the these costs and rethink their position. The burden of proof that IP
information whose use and access would be safeguarded under the auspices increases innovation falls upon the advocates for such a system. Some of
of copyright, patents, trademarks, etc. One would not be able to avail the costs are concrete, and ironically include factors which hinder
himself of the body of many others' work as it would be “protected” by IP innovation itself.
and thus become inaccessible or costly to attain. Finally, even if it were proven to enhance innovation and
Moreover, IP is approximate; it does not simply preclude the prosperity, would it be our place to impose such a system, given that it

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 A SPONTANEOUS ORDER PROPERTY

necessarily abridges one’s rights to his property? The truth of the matter is: Am I just supposed to let everyone copy my work now?
the only things that must be done to maximize wealth are to refrain from
committing aggression and to pursue our own self-interests. Coercion may Not necessarily. The only actions prohibited to you as a means to
still exist, but an institution which has the sole right and obligation to protect your work from being copied without your permission would be
commit aggression as the primary means to solve complex social problems using or threatening physical force against others or their property. Drive-
should never exist. Time and time again it has been shown that appealing to thru movie theaters, for instance, used to attract loiterers attempting to
the State to solve social problems only serves to exacerbate such problems enjoy the show without paying. In response, theaters began installing
and in so doing generate more unforeseen consequences. individual car speakers to prevent free riders from hearing the movie, thus
The market, on the other hand, serves to regulate, allocate, and incentivizing them to purchase a ticket. Information held on CDs is
equilibrate much more efficiently and effectively than any mixed or protected by the use of elaborate encryption methods and registration
controlled economy can, precisely because it does not rely upon central requirements to effectively mitigate free riders. Book authors or musical
planning to effect such adjustments. In freed markets, everyone has to play artists still have the advantage of being first to market and can rely upon
by the same rules, and every voluntary interaction is mutually beneficial. tours, book signings or readings, and other live performances or
However, under a Statist paradigm, a select group of people are able to merchandising as a way to reap profits. The truth is there are countless
ignore the limitations set upon the rest of the citizenry, and benefit numbers of ways in which one can protect himself from free riders without
themselves at the expense of others. In essence, free markets promote win- resorting to aggression.
win outcomes, whereas the State can only produce win-lose or zero-sum
games.

What if someone puts their name on my work and publishes it as his own?!

Let’s say I publish a book and claim to be the author when in

reality I am not. My patrons would be buying what they believed to be a
book written by me, but in actuality, and contrary to my advertisements, it
is not. Once discovered, I may be tried on grounds of fraud, rendering the
use of IP as a legal remedy in this scenario superfluous. In other words,
doing this would be held as a violation of property rights (theft), as I would
be accepting the property of others without fulfilling my condition of the
contract, which is to provide an original work.

Could I make a contract telling the buyer not to reproduce my thing?

Yes, however there are two detrimental effects associated with this
choice. First, this may deter the consumer from purchasing your product as
he may not be comfortable with assuming such liability. Second, it would
not be binding to third parties. Let’s say that you bought a movie and I
came over to your place and watched it, then proceeded to make a movie of
my own with a very similar plot. Even though I am in essence copying this
movie, I could still not be held legally liable as I am not a signature on the
“no copy” contract. As a practical matter, such a method to reduce free
riders may prove to be ineffective.

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 CONTRACT

the first user and claimant of a good has no competing legitimate claimants
with whom he must contend (such is the nature of being first). Voluntary
exchange is also, by definition, free of conflict, as both parties are free to
abstain from the exchange.
Chapter Three Finally, to own something means to have the exclusive right to
control or employ it without uninvited physical interference, so long as such
employment does not entail an uninvited physical interference with
CONTRACT someone else’s person or property. Libertarians believe that all individuals
are self-owners, in so far as they have exclusive rights to control over their
own physical bodies. From the principle of self-ownership, and the
ANY THEORY OF contract will be a divisive one, as few people subsequent ability to acquire exclusive claims to external economic goods,
today, even in libertarian circles, see eye to eye on the precise philosophical the Non-Aggression Principle (NAP) is established. The NAP merely
criteria needed to ground specific ownership claims. This is due, in part, to restates what is implicit in the concept of ownership, i.e., that no one may
an ignorance of the foundations of interpersonal ethics. Perhaps the most justifiably initiate uninvited physical force against another person’s body or
notable misconception due to such ignorance is the notion that all voluntary justly acquired property.
agreements, no matter what their content, are justifiably enforceable. It is important to note that the above is not meant to be an
As we learned before, in order for something to be eligible for the authoritative proof of private property or the NAP; rather it is simply
status of “property,” it must be scarce. This is because the function of intended to identify the fundamental concepts of property and ownership
property is to provide a mechanism by which one may determine who has as the ground work for expounding upon a theory of contract. Stephan
the right to control what resource, and, of course, no such determination Kinsella defines “Contract” as being “a relation between two or more
would be necessary for any non-scarce good. Thus, the ultimate goal of the parties which includes legally enforceable obligations between them.”55 The
concept of property is to assist in the avoidance of conflict between two or term “enforceable,” in this context, means that the use of physical force or
more individuals over the employment and use of scarce (aka economic) the threat thereof would be a justifiable response to any breach of a contract.
goods. Though property, and more specifically private property, is in fact a There exist two general categories of contract: “to do” and “to
norm, this fact does not render the concept itself meaningless or without give.” The former being an agreement to perform a given task or service,
significant purpose. and the latter an agreement to exchange some specified good(s). Regarding
It is commonly accepted that we live in a world where the desires the breach of “to do” contracts, otherwise known as “performance
for various resources exceed their availability. Unavoidable conflict would contracts,” judges generally prefer to award monetary damages, as such
ensue were everyone to engage in a perpetual free-for-all for these scarce damages are easier to oversee and administer than a compulsion to perform
goods. This is not to say the adoption of property norms would a given task.
immediately eradicate all conflict. Rather, it would serve as the logically For example, if you contract with a singer to perform at your
justified foundation from which to arbitrate inevitable disputes over the wedding and he fails to do so, it would be quite difficult to measure
control of scarce goods. Therefore, it is important to formulate a theory of whether or not any successive performances ordered by a given judge
property, such that if followed, all violent interpersonal conflict would be would be of the same quality as that which you originally contracted. That is
avoided from the beginning of its adoption onward and, at the same time, to say, the singer may feel upset about having to be compelled to perform,
allows for justified action prior to any agreement. Man must have justifiable and thus deliberately sabotage his own performance. Moreover, to
actions to take – which imply the use of scarce goods – prior to any contact determine whether or not this was the case would be very difficult as
or arrangement with anyone else. performance levels or qualities are completely subjective, whereas a transfer
The libertarian theory of property, otherwise known as the of a given amount of money in damages can easily be objectively verified.
“private-property ethic,” accomplishes this task. This theory also Finally, it should be added, that though judges may not be willing or
demonstrates that any other theory of property which comes into conflict practically able to compel performance, the threat of monetary/property
with it, such as the Marxian principle “from each according to his ability, to
each according to his need,” only serves to generate conflict, not diminish
it. Thus, such competing theories fail the very purpose of a norm. 55 Stephan Kinsella, "A Libertarian Theory of Contract," in Journal of Libertarian
The original appropriation of goods is necessarily conflict free, as Studies [Link] (2003): 12.
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damages and reputation loss provide sufficient incentive to render the person B would not be causing uninvited physical interference with person
process of contracting for such services useful. A’s property as it no longer exists.
It is important to understand what distinguishes a legitimately Instead of the exchange being immediate and simultaneous
enforceable arrangement (contract) from a non-enforceable arrangement. between person A's and person B's economic goods, Person A is providing
Recall the non-aggression principle (NAP), which states that no one may Person B with temporary title to the stereo now on the condition that
justifiably initiate uninvited physical force against another person’s body or Person B provides Person A with title to his yoyo in the future. Thus, when
justly acquired property; from this principle one may conclude that the only Person B utilizes Person A's stereo in the interim he is not violating the
force which is justified is responsive force. That is, physical force, or the NAP or the arrangement, as use of the stereo in the interim had already
threat thereof, in response to aggression perpetrated by someone else. Thus, been accepted by Person A. Contrary to the previous contract example, Jill
the only arrangements which are legitimately enforceable (i.e., are only consented to giving Charlie title to her three dollars on the condition
considered "contracts") are those which, if breached, would entail an NAP that Charlie provides the hat now as well. Since he failed to do so, Charlie
violation. was therefore in breach of contract when he accepted her three dollars; any
Let us apply this concept to a mere promise that involves no use of Jill's three dollars on Charlie's part would be a breach of contract so
transfer of title to scarce goods: Suppose Bob promises his sister Sue that long as he failed to provide Jill with his hat. Stephan Kinsella elaborates on
he will attend her wedding, but fails to show up. Would it be justified to this seemingly counter-intuitive point:
initiate force against Bob? Of course not! This is because Bob's failure to
show up did not constitute an uninvited physical invasion of anyone's The simplest title transfers are
person or property. Though there may be moral implications associated contemporaneous and manual. For
with lying or neglecting to perform, they are completely irrelevant to the example, I hand a beanie baby to my niece
point of whether or not such an arrangement may be considered a as a gift. However, most transfers are not
"contract." so simple, and are conditional. Any future-
Now, let us examine a separate scenario, where Jill decides to trade oriented title transfer in particular is
Charlie three dollars for his hat. This arrangement is known as a necessarily conditional, as are exchanges of
“conditional transfer of title.” This means that Jill would be offering Charlie title. For example, before dinner, I tell my
title to her three dollars on the condition that Charlie offered the title over niece that she gets the beanie baby after
his hat to Jill in exchange. Thus, if Charlie agreed and accepted Jill's three dinner if she behaves during dinner. The
dollars yet refused to give Jill his hat, or if he gave Jill something other than transfer of title is future-oriented, and
his hat, then he would be guilty of stealing Jill's property (the three dollars), conditional upon certain events taking
and hence be in violation of the NAP. As such, Jill would be justified in place. If my niece behaves, then she
using force, or the threat thereof, to retrieve her stolen property, and acquires title to the beanie baby. Future
perhaps some damages. transfers of title are usually expressly
From this insight, one may discover that the only arrangements conditioned upon the occurrence of some
which may be enforceable are those which involve the transfer of title to future event or condition.
property. This is what is known as the “Title Transfer Theory of Contract.”
However, before we apply our theory to some real world examples, take In addition, because the future is uncertain,
note of one final implication of any contractual arrangement: the title to any future-oriented title transfers are
good in a contract must be in the possession of the obliged party necessarily conditioned upon the item to
(promisor) at the time of specified completion, if it is to be enforceable. be transferred existing at the designated
For example, imagine person A (the promisee) lends person B (the time of transfer. Title to something that
promisor) his stereo, on the condition that, in one week's time, person B does not exist cannot be transferred.
transfers title to his yoyo to person A. Suppose person B’s yoyo is Consider the situation where I own no
destroyed before the week’s end and he comes up empty handed. Would hamster but tell my niece, “Here, I give
person A be justified in using force or making threats thereof against this hamster to you.” In this case, “this
person B to receive remuneration? No, he would not, because at this point hamster” has no referent so no title is

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transferred. Likewise, the future beanie over a specified amount of money now (the loan), on the condition that the
baby transfer is conditional not only on the debtor pays back the principal of this loan, plus interest, at some specified
expressly stated condition—the niece time in the future.
performing the specified action (behaving) Remembering the condition that the promisor must have title over
—but also on the unstated condition that this loan, plus interest, at the time specified in order for the creditor to
the beanie baby exists at the designated expect full repayment, the creditor may decide to proactively add certain
future transfer time. During dinner, the cat clauses to this contract to mitigate financial losses in the case of default.
might destroy it, or it might be lost, or These clauses may say something to the effect of: “on the condition the
consumed in fire. Even if the niece debtor (promisor) is unable to pay back the loan, plus interest, at the agreed
behaves, there is no beanie baby left for time, we will garnish 30% of his wages from that point forward until the
her to acquire. In effect, when agreeing to loan has been fully paid.”
a future title transfer, the transfer is This, of course, is just one of many non-aggressive solutions to the
inescapably accompanied by a condition: problem of default risk. Introducing default terms in the contract stipulates
“I transfer a thing to you at a certain time what is to follow should a promisor be unable to fulfill his agreed to
in the future—if, of course, the thing conditions due to a lack of title to the amount of money owed in full at the
exists.”56 time of the contract’s completion. Requiring collateral be placed as a
precondition to entering into a loan contract is another solution. Such a
In such future-oriented conditional transfer of title arrangements, it contract may read as “I hereby transfer to you title to my car on the
is the buyer of future goods that implicitly bears the risk of default. The condition I do not fulfill the loan obligation at the specified time.” This is a
buyer of present goods suffers from no default risk – he receives his half of way of creating incentive for the debtor to make good on the loan. Perhaps
the transaction instantly as soon as the contract is made. In this type of title to the car would be held in escrow until the loan has been paid in full.
exchange, the promisee agrees to transfer something in the present which is Details of the collateral transfer can take as many forms as the parties wish.
certain. Thus, if he is unable to produce the item at present, then the Another, and perhaps more obvious, proactive measure a creditor
arrangement ends before it ever begins. However, if the promisee – acting may take to reduce the risk of default is to run a credit check on the
as a buyer of future goods – provides his goods and enters into a future prospective debtor prior to providing him/her with a loan. Such a credit
oriented conditional transfer of title arrangement, he is inevitably accepting history would help the creditor determine the likelihood that the
the risk, because the future is uncertain, that whatever he is expecting to prospective debtor will make good on the loan. With this information in
receive in return in the future actually exists upon the completion of his end mind the creditor may very well decide not to offer this prospective debtor
of the arrangement. with a loan at all.
In contrast, if person B did indeed possess title to the yoyo in At no point would it be justified to place debtors into a "debtor's
question, and was simply refusing to give it up, then this would constitute a prison" if they fail to pay their loans in full, due to their lacking title to the full
violation of person A’s property right to the yoyo, and would entail a amount owed. Recall earlier that the implicit assumption of future oriented,
situation in which person A may justifiably use force against person B in conditional transfer of title contracts (for instance, a loan contract) is that
response to said violation. There are, of course, ways in which the effects of whatever is being contracted for exists at the time of the contract's
such a default may be mitigated or remunerated through other contractual completion. Thus, if the debtor simply does not have enough money to
mechanisms, which will be discussed shortly. Finally, such title transfers do cover the loan in full, then he cannot be justifiably punished via violent
not have to be written on a piece of paper. They may simply be formed by means or threats thereof. Put differently, the debtor is not causing a rights
“manifesting one’s intent to transfer ownership or title to another.”57 violation as the creditor voluntarily exchanged titled property for a promise
Let us now apply this theory to a monetary loan contract. A loan is of future goods. If the future goods fail to manifest, there can be no title
simply one more example of a future oriented, conditional transfer of title, issued nor transferred for them. Hence, the debtor is in no way violating
whereby the creditor (the promisee) grants title to the debtor (the promisor) the NAP, and therefore any force used against him would be considered
aggression and therefore unjustified.
With regards to employment arrangements, they are generally not
56 Kinsella, "A Libertarian Theory of Contract," 12. binding on the part of the employee, as they are typically set up in the
57 Kinsella, ibid, 21.
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following manner: “I hereby transfer title to X amount of money to you on another may legitimately claim to have a superior, objectively verifiable link
the condition you perform task Y.” Thus, if the employee decides not to and therefore title. Despite being a self-owner, however, it is impossible for
perform task Y, then he/she simply is not compensated with pay X. one to relinquish ownership of his body. What marks one's ownership over
However, if the employer wanted some assurances that the employee would his body is his uniquely direct control over it, which itself constitutes a
not refuse to show up to work, he may provide an employment contract superior objective link. This direct control is evidenced by his ability to
that reads something to the effect of: “I hereby transfer title to X amount physically animate his body by will alone – that is, without the assistance of
of money to you on the condition that you perform task Y; on the a separate, physical medium. Because one cannot alienate this direct control,
condition you fail to perform task Y, you hereby transfer title to Z amount one cannot create in another a superior objective link to his body, and
of money to me (the employer).” Of course, additional clauses similar to the therefore it is impossible for him to legitimately transfer title over his body
ones delineated in the defaulting debtor case may be applied to the case of a to another person via contract. For this reason, one cannot sell himself into
defaulting employee. slavery. Hoppe elaborates on the issue of body-ownership:
Adjacent to discussions of contractual employee obligations are
discussions of voluntary slavery. Kinsella notes the difference between The answer to the question what makes
owning a body and owning external goods: my body "mine" lies in the obvious fact
that this is not merely an assertion but that,
…the modified title-transfer theory for everyone to see, this is indeed the case.
proposed here [Kinsella's modifications on Why do we say "this is my body?" For this
Rothbard's title-transfer theory] recognizes a twofold requirement exists. On the one
that the body is ‘owned’ only in the sense hand it must be the case that the body
that a person has the sole right to control called "mine" must indeed (in an
the body and invasions of its borders. But intersubjectively ascertainable way) express
the body is not homesteaded and acquired, or "objectify" my will. Proof of this, as far
and cannot be abandoned by intent in the as my body is concerned, is easy enough to
same way that homesteaded property can.58 demonstrate: When I announce that I will
now lift my arm, turn my head, relax in my
The act of originally appropriating a scarce good or receiving it through chair (or whatever else) and these
voluntary exchange creates a superior, objectively ascertainable link with the announcements then become true (are
owner that enables him to demonstrate his claim to said good to any third fulfilled), then this shows that the body
party. This is the practical condition required to put the private property which does this has been indeed
norm into practice, and to enable a third party to enforce it. If one claimed appropriated by my will. If, to the contrary,
to be the owner of a good, but had no demonstrable evidence of my announcements showed no systematic
ownership, then a third-party arbiter would have no objective basis from relation to my body's actual behavior, then
which to render a verdict. A superior, objectively verifiable link to specific scarce the proposition "this is my body" would
resources is what grounds legitimate ownership claims and separates them from baseless have to be considered as an empty,
decrees or declarations. objectively unfounded assertion; and
Currently, one can only indirectly control external goods. likewise this proposition would be rejected
Manipulation of an ax first requires the usage of muscles, tendons, and as incorrect if following my announcement
appendages; control of the ax is indirect because one integrates it into his not my arm would rise but always that of
plans only through an intermediary – the muscled arms of his physical body Müller, Meier, or Schulze (in which case
– which he directly controls with his will. Once an external good becomes one would more likely be inclined to
homesteaded, it can only be assigned a new owner through voluntary consider Müller's, Meier's, or Schulze's
exchange or abandonment of the good and a re-appropriation before body "mine"). On the other hand, apart
from demonstrating that my will has been
"objectified" in the body called "mine," it
58 Kinsella, ibid, 32.
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must be demonstrated that my justly applied.60

appropriation has priority as compared to Whenever physical interference is involved with the bodies of
the possible appropriation of the same others, it is crucial to determine the target's most recent consent or refusal
body by another person. prior to the interaction. Barring the objections of aggressors, this criteria
determines whether force applied was just or not (whether aggression has
been committed). For instance, all gentlemen understand the difference
As far as bodies are concerned, it is also between rape and seduction; it is the lady's most recent act of consent or
easy to prove this. We demonstrate it by refusal. Should either party change their mind, the most recent decree
showing that it is under my direct control, would override the earlier approval. Ownership over things, including
while every other person can objectify bodies, implies the right to change one's mind as to how it is to be
(express) itself in my body only indirectly, employed in the immediate or remote future. Unlike bodies, which we are,
i.e., by means of their own bodies, and for better or worse, stuck with, external goods can be relinquished and a
direct control must obviously have logical- property title ultimately dispensed for them. Either party's consent to sex
temporal priority (precedence) as earlier in the night is not tantamount to a transfer of title, partial or
compared to any indirect control. The otherwise, of one's body. Once again, one is unable to make such a binding
latter simply follows from the fact that any transfer of title over his body to his partner or to anyone else. Indeed, the
indirect control of a good by a person very fact that someone is unable to transfer title to his body explains why
presupposes the direct control of this mere promises of performance are unenforceable. This is because they
person regarding his own body; thus, in would imply, to some degree, a transfer of title over one’s body to another.
order for a scarce good to become Only if it were possible to alienate the direct control of one's body and
justifiably appropriated, the appropriation furnish a title for it could one be able to justifiably initiate uninvited force
of one's directly controlled "own" body against another, or make threats thereof, as a means to compel him to
must already be presupposed as justified. It perform a given act or service.
thus follows: If the justice of an From this, we may be able to conclude that contracts only pertain
appropriation by means of direct control to the transfer of title to external goods. This does not preclude selling
must be presupposed by any further- one’s own body parts, for as soon as they are removed, they would then
reaching indirect appropriation, and if only naturally become 'external' goods. Finally, this reaffirms the fact that the
I have direct control of my body, then no only justifiable inter-human force is force that is either invited or responsive
one except me can ever justifiably own my to uninvited physical interference initiated against one's person or property.
body (or, put differently, then property Now, let us deal with the issue of fraud. Fraud is, quite simply,
in/of my body cannot be transferred onto another form of theft. For example, let’s imagine that I decide to enter into
another person), and every attempt of an a trade with a friend whereby I agree to transfer title of my five dollars to
indirect control of my body by another her on the condition that she transfer title to a basket of edible apples to
person must, unless I have explicitly agreed me. If I proceed to give her the five dollars and she hands over to me a
to it, be regarded as unjust(ified).59 basket of wooden apples, then she has stolen from me.
The transfer of title over the five dollars was conditional on her
One can, however, forfeit a portion of rights over his own body if providing me with edible apples. So, because she failed to uphold her end
he commits aggression against the person or property of another. of the contract, I would remain the proper owner of the five dollars, and
According to Kinsella's estoppel theory, aggressors are unable to coherently she would be in possession of my property without my consent. Acquiring
object to force applied against them. By their committing a tort, they possession of someone else’s property without their consent is the very
implicitly have accepted the premise that initiatory force is acceptable. Of definition of theft; in the preceding scenario, such theft happened to take
course, there is a limit to what degree of force used for retribution may be
60 See Stephan Kinsella's essay on 'Punishment and Proportionality: The Estoppel
59 Hans-Hermann Hoppe, Eigentum, Anarchie Und Staat: Studien Zur Theorie Des Approach' [Link]
Kapitalismus (Opladen: Westdt. Verl., 1987). Estoppel-Approach.
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the form of a fraudulent transaction. Suppose, however, I manifested my building of infrastructure, national defense, public education, adjudication
intent to purchase my friend's ornate, painted apples under the impression of disputes and more. However, all of the resources the State and its agents
that said apples were edible, yet in reality they were wooden. In this use in order to provide these services are paid for with stolen funds, i.e., the
scenario, the transfer would not be fraudulent as the content of the revenue acquired from taxes. The act of taxation constitutes aggressive
contract, as evidenced purely by demonstrated preference, expressed merely interference with others as a means to compel them to relinquish their
a desire to exchange my five dollars for my friend's apples. Nothing in this property to the State. This is institutionalized robbery. The State must
act alone would indicate in any objectively verifiable manner that a acquire funds before it can provide services. Thus, the State's act of
condition of this title transfer be that the apples are edible, sweet-smelling, providing "public services" on social contract grounds cannot be supported
durable, or have any particular attribute. My action of purchasing an apple, as it begins in naked robbery. Because all of the State’s services and functions
without any mutual understanding of context or purpose, only are only made possible by first committing mass theft against its “citizenry,”
demonstrates a preference for a particular, individual item as-is. As such, I we can readily judge “social contract” justifications for the State to be
would have to bear the costs of my faulty assumption. invalid. No contract which involves robbery and the transfer of stolen
One final and perhaps obvious component to any just contract is property is just or legitimately enforceable, yet the “social contract” appears
that the titles to whatever is being transferred must legitimately be owned to be exactly that: a contract involving the transfer of expropriated goods.
by the parties engaged in the contract. For instance, if I stole Johnny’s
model train and traded it to Debra for a pack of bubble gum, then this
would constitute an illegitimate transaction. Johnny would have every right
to approach Debra and demand his train despite the fact that she
exchanged with me in good faith. Of course, Debra would then be able to
retrieve damages from me, as I would have fraudulently taken her bubble
gum. This is because her transferring of the bubble gum to me was
conditional upon my transferring title of the train to her. Because I never
acquired legitimate title to it and yet proceeded to take her bubble gum, my
act would be considered theft.
Lessons from the Title Transfer Theory of Contract can also be
applied to the “social contract.” For the same reasons my exchange with
Debra was illegitimate because it involved Johnny’s stolen property, so too
can the State’s “social contract” be deemed illegitimate. Social contract
theorists argue that utilization of State-provided resources, such as roads,
defense, education, law, etc., gives agents of the State the right to impose
laws and command obedience to them by physical force or threats thereof.
Beyond this, States claim the right to compel performance of services; such
is the case with taxation, conscription, compulsory education, etc. Should
one fail to surrender property to the State in the form of taxes, or fail to
abide by the laws created by it, then this entity claims the right to kidnap
and detain the offender in a cage. Should one resist such an arrest, the State
grants its agents the authority to end his life with overwhelming force. This
behavior does not generate public outrage, for nearly everyone to some
degree believes agents of the State are morally exempt from laws that
govern our own behavior. They are given a superior status over normal
members of society. Acts such as extortion and murder become
euphemized into "taxation" and “execution of the law.”
Most people are complicit with this paradigm, as they see the State
providing much-needed services to the general public, including the

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process by which scarce non-goods are transformed into goods.

Additionally, something like oxygen would generally be considered a “free
good/general condition,” because it is virtually ubiquitous at sea level on
Earth. In other words, one can use as much oxygen as he wants without
Chapter Four limiting his own or any other person’s access to it. It is important to keep
in mind that property rights are only applicable to scarce goods, not non-
scarce or free goods.
MONEY AND BANKING Value is subjective; even in similar situations, opportunity costs
may vary from person to person. If both Victor and Bobby go out for
lunch, Victor’s opportunity cost may be skate boarding while Bobby’s
THIS CHAPTER WILL examine the indispensable role that money opportunity cost may be spending time with his girlfriend.
and banking play in society. Scarcely any other concept is more important Economic decisions are those involving the use of scarce, rivalrous
to understanding the nature and beauty of economic spontaneous order goods. “Economizing” goods simply refers to the act of treating them with
than money and banking. the understanding that they are scarce and can only satisfy a limited number
Money allows us to protect ourselves against unpredictable of desires. This concept may also refer to using/allocating goods in such a
contingencies. Holding cash balances is an attempt to mitigate an uncertain way that the greatest number of desires are satisfied to the greatest degree.
future by commanding purchasing power in the maximum number of There are three types of economic goods: consumer goods,
possible situations. This is the purpose of liquidity: to provide immediately producer goods, and money. Consumer goods are those which directly
salable goods to trade for anything else one might want. Money prices serve satisfy desires. The drinking of water as a means to quench one's thirst puts
as an indispensable guide in our daily economic decisions, be they as simple the water into the category of a consumer good. One has a desire to quench
as deciding which toothpaste to purchase or as complex as which his thirst, and consuming the water directly satisfies this desire.
production method to use for assembling a series of automobiles. Finally, Producer goods, on the other hand, are those goods used to
and perhaps most fundamentally, money facilitates cooperation with our indirectly satisfy desires. Depending on how it is used, the same good could
fellow man through the harmonization of each of our unique self-interests. act as a consumer or producer good. Water, used to boil food, serves as a
Money and money prices weave our interests together in voluntary and producer good as its usefulness is indirect in that it merely assists in the
mutually beneficial ways. Money that emerges naturally from a state of creation of food – the desired consumer good.
barter is organic and promotes harmony in much the same way harmony or Producer goods – otherwise known as means of production – may
equilibrium is achieved in nature. This phenomenon of spontaneous order be further subdivided into the following three categories: land/natural
manifests a sustainable and enriching environment for all of its participants, resources, labor, and capital goods created by the use of land and labor.
perpetually reorienting itself according to the infinite number of constantly Land and/or natural resources refer to any goods that are found in
changing variables in a manner that no central planner(s) could ever hope to nature. Oil is a natural resource whereas a hammer is not. Only when these
parallel. gifts of nature are used to indirectly satisfy a desire can they be considered a
producer good. Eating a coconut purely to satiate my hunger renders it a
consumer good. However, use of the coconut as ammunition in my
Economic Fundamentals coconut cannon for the sake of hunting wild game would render it a
producer good.
Labor refers to activity emanating from a person’s body that
Many references have been made toward “goods,” however, this contributes to the production of goods or services. If one directs his efforts
term has not been explicitly defined. Economic goods are simply any scarce toward the indirect satisfaction of desire, then he is engaging in "labor."
means that a person sees as having the capacity to achieve a certain desired Conversely, using his efforts to directly satisfy his desires would be
end. Thus, undiscovered or ubiquitous resources are not considered considered "leisure." If one’s desire is to quench his thirst, then the act of
economic goods. For example, a deposit of gold that has been undiscovered drinking water is considered leisure, however the procurement of this water
in the Ozarks would not be considered a good, because no one would be is considered labor. A related concept is the “disutility of labor,” which
aware of its existence, and therefore could not see it as a means to a desired refers to the fact that people prefer leisure to labor and will only commence
end. Homesteading (original appropriation), as discussed earlier, is the
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in labor if they believe it will produce more satisfaction in the future than producers offer the same or greater number of units.”63 To illustrate supply
the leisure foregone in order to produce it.61 as being a relationship rather than a number, economists will often times
Capital goods refer to man-made means of production. Screw construct a “Supply Curve” which is “a graphical illustration of the supply
drivers and factories are examples of capital goods, since they are used to relationship, with price placed on the vertical axis and quantity on the
produce consumer goods and are man-made, i.e., not gifts of nature. In horizontal axis. Sometimes a generic supply curve is drawn as a smooth,
modern society, many capital goods are produced by other capital goods, curved line or even as a simple straight lie. Supply curves are ‘upward
thus compounding their productive utility (e.g. factories producing sloping,’ meaning that they start in the lower left and move up and to the
screwdrivers). The purpose of capital goods is to make labor more right.”64 Finally, a “reduction in supply” refers to “a situation in which a
productive, to enable a given amount of labor to generate more goods than change other than the price of a good or service causes producers to reduce
it otherwise would. the number of units they want to sell, at various possible prices.” An
The third major type of good is “money”. Money is any good that increase in supply would be the inverse. For instance, if a drought in the
serves as a universal or prevalent medium of exchange. It is neither used for Midwest significantly hampers grain production, this event may be said to
direct consumption nor for the production of goods, but is rather used to have caused a reduction in supply, because due to the reduction of salable
facilitate the exchange of consumer and producer goods. Rothbard expands goods, grain sellers may offer fewer units of grain for a given price than
upon this definition: they otherwise would.
Demand is a relationship between how many goods consumers
Money is the medium of exchange, the desire, and at what price they are willing to trade for them. Just like supply,
asset for which all other goods and demand is not a number but a relationship. For example, Harry may only be
services are traded on the market. If a willing to purchase one game at a price of ten dollars each, but may be
thing functions as such a medium, as final willing to purchase five games at a price of seven dollars each. This
payment for other things on the market, “demand schedule” is a snapshot in time; in different, more desperate
then it serves as part of the money supply.62 circumstances, Harry may be willing to pay more for the games than if he
were in less desperate circumstances. This follows the “law of demand,”
which states “if other influences stay the same, then a lower price will lead
Supply and Demand consumers to buy more [or the same number of] units of a good (or
service), while a higher price will lead them to buy fewer [or the same
number of] units.”65 A common objection given to the law of demand is
The concepts of supply and demand are integral to understanding that a given person may be more drawn to buying a particular hand bag if it
economic matters and social relations. Often times, they are confused or were more expensive, due to its reflection as a status symbol. However, this
misunderstood; for the sake of clarity, a quick review is in order. does not contradict the law of demand as the added social status of the
Supply is a relationship between the number of goods held, and at hand bag would render it a different good entirely from any mere hand bag.
what price sellers are willing to trade them. For instance, Sarah may only be For instance, imagine a card with a typical baseball player on it, and then
willing to sell two melons at a price of three dollars each, but may be willing imagine if this same card were to become a collector’s item in the future.
to sell five melons at a price of six dollars each. This leads us to the “law of Though the physical properties of the card did not change, its perceived
supply” which states “...as the market price of a good or service rises, status did, thus it went from being a common card to a “collectors card” –
an entirely new good. To demonstrate the nature of demand, economists
often times construct a “Demand Curve” which is “a graphical illustration
61 Time preference will also play a role into this value accounting because, other things of the demand relationship, with price placed on the vertical axis and
equal, people prefer to have goods sooner rather than later. Thus, when deciding to quantity on the horizontal axis. Sometimes a generic demand curve is drawn
engage in labor, one will consider both the value of the object of leisure he/she could
have now and the one he/she may expect to gain in the future if labor is resorted to,
along with the cost of having to defer his/her gratification in pursuit of this 63
potentially greater future return. Robert P. Murphy, Lessons for the Young Economist (Auburn: Ludwig Von Mises
62 Institute, 2010), 153.
Murray N. Rothbard, "Austrian Theory of Money" in The Foundations of Modern 64
Austrian Economics, edit. Edwin G. Dolan (Mission, Kan.: Sheed & Ward, 1976), Murphy, Lessons, 154.
65 Murphy, ibid, 148.
182.
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 A SPONTANEOUS ORDER MONEY AND BANKING

as a smooth, curved line or even as a simple straight line. Demand curves

are downward sloping, meaning that they start in the upper left and move
down and to the right.” Finally, a “reduction in demand” refers to “a Origin of Money
situation in which a change other than the price of a good or service causes
consumers to reduce the number of units they want to purchase, at various
possible prices.” An increase in demand would be the inverse. For example, Money spontaneously rose out of the barter economy, due to its
if there were reports indicating there had been an outbreak of e-coli trade facilitating properties. Participants in the economy tend to pick the
amongst poultry products, then this may be said to have caused a reduction most salable good on the market as their unit of trade. Silver coins are more
in demand, because consumers as a whole would not be willing to purchase salable than horseshoes, and so the former will tend to beat out the latter as
the same quantity of poultry at a given price as they otherwise would have a medium of exchange. Users will tend to gravitate towards salable objects
purchased had the outbreak never occurred. as they allow each person the maximum degree of control over future
uncertainties. Jörg Guido Hülsmann describes the process
individualistically:

The emergence of money happens

through a gradual process, in the course
of which more and more market
participants, each for himself, decide to
use one commodity rather than others in
their indirect exchanges. Thus the
historical selection of gold, silver, and
copper was not made through some sort
of a social contract or convention.
Rather, it resulted from the spontaneous
Many economic concepts may be extrapolated from supply and convergence of many individual choices,
demand mechanics, however we will only cover three: surplus, shortage, a convergence that was prompted
and equilibrium prices. A surplus occurs when producers attempt to sell through the objective physical
more units of a good or service than consumers are willing to purchase at a characteristics of the precious metals.
given price. For example, if a television salesman offers fifteen units at a Money selected in the free market. i.e.
price of 1,000 dollars each, but only ten people are willing to purchase money that comes into use by the
them, then the salesman will have a surplus of five units that he is unable to voluntary cooperation of acting persons,
sell. A shortage occurs when consumers want to buy more units of a good is also called natural money.67
or service than producers are willing to sell at a given price. Using the
television analogy, suppose the salesman offers his fifteen units for 700 Hoppe explains how monies gain inertia:
dollars each, but there are twenty people who wish to purchase them at this
price. In this case, the salesman will have a shortage of five units. Finally, By adding a new component to the pre-
the equilibrium price (or market clearing price) is “the price at which existing (barter) demand for these goods,
producers want to sell exactly the number of units that consumers want to their marketability is still further enhanced.
purchase. On a graph, the equilibrium price occurs at the intersection of the Based on their perception of this fact,
supply and demand curves.”66 This situation occurs if our salesman prices other market participants increasingly
his fifteen television units at nine hundred dollars each and exactly fifteen choose the same goods for their inventory
people are willing to purchase them at such a price.
67 Jörg Guido Hülsmann, "The Origin and Nature of Money" in The Ethics of Money
66 Murphy, ibid, 171. Production (Auburn: Ludwig Von Mises Institute, 2008), 22-24.
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 A SPONTANEOUS ORDER MONEY AND BANKING

of exchange media, as it is in their own 1) Money must be homogeneous. The natural process by which
interest to select media of exchange that money emerges is one in which one good is set up against all others
are already employed by others for the so as to enable simple and accurate economic calculation by means
same purpose. Initially, a variety of goods of exchange ratios. “Heterogeneous money” (money units that
may be in demand as common media of differed from each other) would undermine the process of
exchange. However, since a good is economic calculation by requiring multiple exchange ratios. Not
demanded as a medium of exchange to only this, but a heterogeneous money would imply that some of its
facilitate future purchases of directly component goods would be more salable than others (given their
serviceable goods (i.e., to help one buy differing qualities) thus rendering this monetary unit necessarily less
more cheaply) and simultaneously widen efficient than a money comprised of the single most salable good.
one's market as a seller of directly useful 2) Ease of transport is highly regarded among monetary units as
goods and services (i.e., help one sell more having to lug around cumbersome and hefty goods for trade incurs
dearly), the more widely a commodity is unnecessary transaction costs (i.e., the space and energy required to
used as a medium of exchange, the better it transport it)
will perform its function.68 3) Divisibility of the unit is of chief importance as this allows the
users of money to make small and large purchases of varying
And Mises describes the inevitable tendency of a successful money: degrees.
4) Durability is another important consideration, for money would
Because each market participant naturally hardly be useful if it melted in your pocket or disintegrated once
prefers the acquisition of a more touched.
marketable and, in the end, universally 5) The ability to verify the integrity of a money unit is paramount.
marketable medium of exchange to that of Units that could be easily counterfeit would not survive long as the
a less or non-universally marketable one, most common medium of exchange. If a seller finds it difficult to
there would be an inevitable tendency for verify the authenticity of money, he will be less likely to accept it as
the less marketable of the series of goods payment.
used as media of exchange to be one by 6) Scarcity is one of the most important factors, for if a money had an
one rejected until at last only a single infinite supply, then it would be unable to yield comprehensible
commodity remained, which was prices. Money prices are simply the exchange ratios set up between
universally employed as a medium of monetary units and all other goods/services in the economy. Thus,
exchange; in a word, money.69 if one side of this ratio was infinite, then it would be impossible to
compare and contrast the values of individual goods and services.
This would effectively defeat the purpose of a medium of exchange
Characteristics of Money – to enable market participants to more objectively ascertain the
costs of their economic decisions.
7) All these criteria fit together and reinforce the marketability of a
It is observed that money spontaneously chosen by market
good giving it liquidity. This is perhaps the most important
dynamics tends to have a certain set of characteristics: homogeneity,
characteristic of money, as the overall utility of money is primarily
portability, divisibility, durability, verifiability, scarcity, and, from all of
measured by how widely it is accepted as payment. Highly
these, liquidity.
reproducible, fragile, and non-divisible goods will seldom become
liquid. Liquidity is a state of acceptance. The very purpose of
money is to facilitate exchange and the facilitation of exchange is
68 Hans-Hermann Hoppe, "How Is Fiat Money Possible? Or, the Devolution of Money completely contingent upon the desirability of what is being used
and Credit," in The Review of Austrian Economics 7.2 (1994): 50. as a medium of exchange.
69 Ludwig von Mises, "The Functions of Money" in The Theory of Money and Credit
(New Haven: Yale University Press, 1953), 32-33.
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There are two different types of money: commodity money and fiat dairy farmer does accept Bob’s strawberry offer in exchange for butter,
money. Commodity money is a scarce money unit, such as gold or silver, or which in turn Bob now uses in exchange for the butcher’s bacon, and
its redemption is promised in terms of such a good. Fiat money is finally uses the bacon to acquire the shoes he originally sought from Joe the
commonly referred to as “paper money” as it is not “backed by” – or shoemaker. This tedious process is clearly inefficient when compared with a
redeemable for – any particular good or commodity. Such money is monetary economy where Bob can simply sell his strawberries for money –
brought into existence by the coercive dictates of States and is deemed a common unit of account – and then use the money to purchase the shoes
“legal tender” by law (i.e., by central fiat). When the State supports or directly. This significantly reduces Bob’s otherwise high transaction costs
creates fiat money, it usually does so by means of legal tender laws. This involved with executing many exchanges in order to procure one desired
requires that all creditors under its jurisdiction accept it as payment of debt good.
under threat of legal action for non-compliance.
Moreover, taxes are generally required to be paid in the form of
legal tender. Such legal tender laws are one of the primary reasons that Calculation
commodity money is not in more prevalent use today. Without the violence
and coercion of the State, market actors would utilize sound currency that
bears little to no resemblance to today’s government fiat. According to In addition to being able to trade more easily, Bob realizes he is
Robert Murphy, a sound money is one “...for which the value doesn’t able to have a much clearer understanding of the costs of any good or
bounce around erratically, and doesn’t lose its purchasing power over time.”70 service under a monetary system. Prior to the advent of money, Bob had to
In addition, sound money is one in which tight control over the production keep track of a myriad of exchange ratios between various goods. He had to
of the money unit is maintained. This may be due to wise stewardship over figure out how much shoes were worth in terms of strawberries, pounds of
fiat production, geological factors limiting production of precious metals, or butter, and gallons of milk. A gallon of milk itself would be priced in terms
advanced cryptography securing the scarcity of digital money. of horseshoes, sheep, leather, strawberries, etc, and every other good
likewise would be priced in terms of every other good. Bob would repeat
this valuation process for every other good he might desire. Even if he were
Double Coincidence of Wants able to understand or calculate his costs in terms of all of the economy’s
exchange ratios, by the time he finished, most of them would have become
irrelevant and obsolete due to the likely shift in availability and preferences
Barter is the act of trading consumer or producer goods directly for that would have occurred in the interim. Thanks to money, Bob now only
other consumer or producer goods. One of the advantages the use of has to keep track of the exchange ratios between units of money and all
money has over direct barter is that its users are not constrained by the other goods offered on the market. This exchange ratio is more commonly
“double coincidence of wants.” This is a situation in which both trading referred to as a good's "price." With money, Bob is also able to make more
partners must desire precisely what the other offers. A double coincidence rational economic decisions in regards to production and consumption,
of wants situation may play out thusly: Suppose that Bob is a strawberry because he is now able to quantify his opportunity costs in terms of
producer who wants to acquire shoes from Joe the shoemaker. Bob decides monetary units. Bob can compare how much money it would cost to
to offer Joe a bucket of strawberries in exchange for a pair of shoes purchase Strawberry producing equipment with how much income he
produced by Joe, but, as it turns out, Joe places little value on strawberries expects to receive from the greater production of strawberries this
and refuses Bob’s offer. Naturally, Bob asks Joe what it is he does want, equipment will yield. If he predicts that the extra income he generates will
and Joe replies “one pound of bacon.” Bob then proceeds to offer the local be less than what the equipment costs, he will likely decide to refrain from
butcher a bucket of strawberries in exchange for one pound of bacon, but purchasing it. If he predicts his additional income would be more than the
tragically finds himself in the same predicament because Sam the butcher cost of the equipment, he will likely follow through with the purchase. This
desires butter, not strawberries. The poor strawberry producer Bob is how money facilitates and simplifies entrepreneurial decisions; it allows
inevitably repeats this process until he finds someone who does desire his actors to appraise their costs in terms of one unit – the most popular and
strawberries and is willing to trade. For simplicity’s sake, assume the local salable – instead of maintaining and updating hundreds of exchange rations
simultaneously.
Money also simplifies the testing of these predictions. For example,
70 Murphy, ibid, 338.
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it may be the case that Bob receives much less income than he predicted by possible without having a leftover surplus of his wares or services.
incorporating this new machinery. Such erroneous predictions will occur in Conversely, the consumer wants to spend the least amount of money on a
any economic context because no one can or will have perfect information. given good that a seller is willing to offer. The buyer and seller have an
However, money and the pricing mechanism it manifests allows incentive to negotiate with each other in the presence of competition. If the
entrepreneurs like Bob to more easily recognize when they are generating seller offers a good for “too high” of a price, the buyer may decide to go to
losses, thus allowing them the insight necessary to modify their production his competitor offering the same or similar good at a lower price. If the
processes accordingly. Without money, it would be much more difficult for buyer insists on making offers which are “too low,” he may lose out on the
Bob to determine whether or not his business was profitable. It would be opportunity to acquire the given good or service to the next potential
even more challenging to pinpoint the specific business practices that were customer who is willing to pay a higher price. Thus, opposing desires, in the
succeeding or failing and to what degree they yielded profits or generated context of a competitive economy, drive a tendency towards a meeting in
losses. This “calculation” process enabled by money can be applied to any the middle (this is also known as the market clearing price). There is always
economic decision. Of course, the entrepreneur does not have to do what is a tendency for such a harmony to be achieved in the free market where
most profitable in terms of money. The availability of money and prices economic goods are privately owned.
merely provides him with a better understanding of which activities will Most socialist doctrines, however, call for the collective ownership
satisfy the desires of the consumer and to what degree they do so. Such of all the means of production. In light of our understanding of the
information allows him to make more informed economic decisions function of private ownership of goods, let us examine the consequences of
regarding where to produce his goods, how to produce them, from which this arrangement. Those who employ the means of production in a socialist
materials to produce them, where and how to distribute them, how many to economy are not as able or incentivized to experiment in novel ways to
produce, and so on. The introduction of money informs all these choices. make profit – that is, to continually search for new ways to reorient or
To further illustrate, consider the case of a furniture producer modify their employment so as to increase productivity – as private owners
seeking a location to construct his factory. On the surface, it may seem of the means of production would be in a competitive economy.
most sensible for him to place his factory next to the retailers willing to sell Patronage for the services of such productive means is guaranteed;
his products so as to cut down on transportation costs. However, it may be as all means of production would be collectively owned, no counterpart
the case that the land in this area is of even greater value to a computer chip providing competitive disruption may exist. Without competition, wasteful
manufacturer who is willing to bid more for it than our furniture producer. and/or undesirable enterprise abounds because its survival is shielded from
Thus, it may make more sense for the furniture producer to locate his market pressures. Socialist enterprise is not guaranteed to experience the
factory at a more distant location if he projects that the increased costs in consequences otherwise faced in a free market for poor performance: loss
transportation will be less than the additional costs he would otherwise of business and money.
have to pay to secure the location nearest the furniture retailers. The same Let us assume, however, that the workers and managers of such
may be said regarding which materials to use. It may not be profitable to collectively owned producer goods are saints and angels and wish to
use the "best" or "highest quality" materials as such materials may be valued maximize production owing to their altruistic love of mankind and of
more for use in other productive processes than in the furniture achieving the “greater good.” Even with such magnanimity, without prices
entrepreneur's plans. Thus, the pricing mechanism takes into account all of amongst the means of production, it is virtually impossible to determine the
the opportunity costs regarding what to produce, how to produce, where to way in which they may be economized. With market prices, entrepreneurs
produce, and what materials with which to produce when conveying to the have quantifiable and objectively comparable indicators of the demand for
producer what course of action will be most profitable. Without such a varying arrangements of the means of production. For instance, without
mechanism, this entrepreneurial decision making process would be highly market prices for the means of production, there is no way to objectively
arbitrary and comparatively less efficient. determine the true production costs of any particular good, and therefore
It is only through the private ownership of economic goods that the market is whether its production (or the method used to produce it) is profitable.
able to produce prices which accurately reflect the relative demand for and supply of the Knowledge of market prices for the means of production enables
world’s scarce resources. To understand this further, simply consider how prices entrepreneurs to structure their capital or productive projects in a manner
are generated. The seller generally wants to price his goods such that the that yields the lowest opportunity costs. Another way of saying this is that
number of people willing to purchase them equals the numbers of units he competitive pressures continually exert on the entrepreneur to provide the
is offering. In other words, he wants to price his goods at the highest level most valuable products and services while using those resources which have

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the least relative demand for alternative applications. However, if such land and capital goods, must lack the
factors of production are collectively owned, it is comparatively much more ability to calculate and compare goods and
difficult, if not impossible, to determine their opportunity costs (as no services, and therefore any rational
money prices can emerge for them), thus rendering the productive allocation of productive resources under
infrastructure in such a socialist paradigm comparatively less efficient than socialism is indeed impossible.71
its counterpart in a free market economy. Economic actors in a fully
socialist economy cannot engage in rational economic “calculation” – the
process of reducing opportunity costs by discovering less valued means of Profits
production. Centrally planned industries bear only superficial resemblance
to competitive markets, for they operate with workers and managers and
sell products at certain money prices. However, in socialist economies, One of the most incredible attributes of free markets is the ability
production processes are given down from government fiat. Planning to harmonize our self-interests with the interests of greater society.
boards determine all the relevant economic details of a firm – what supplies Contrary to the popular demonization of profits as extraction of surplus
to be used and from where to acquire them, how many laborers must be value, profits in freed markets actually represent the adding of value to
hired and to what employments they will be put, even down to the products society. Making a profit in free markets requires one to combine or
and the prices at which they are to be sold. In such a society, there are no transform some good(s) in such a way that its resulting configuration is
entrepreneurs, merely managers. Heads of industry simply obey the valued more by the consumer than the cost of labor and original materials,
production diktats given from on high. For every production process including time, used to produce it. In other words, a profit is the positive
chosen, they must operate in the dark. Therefore, to the extent market prices are difference between the total costs of production and the resulting price paid
perverted through measures which infringe on the private ownership of any scarce good, for a good or service by the consumer. If Joe constructs a bench that costs
entrepreneurs are hindered in discovering efficient means by which to produce goods, fifty dollars in materials, twenty dollars in labor, and ten dollars in overhead
resulting in the economy’s departure from its optimum productive potential. Murray costs (the fixed cost of the facility, utilities, etc.), then the total production
Rothbard explains the importance of Mises' calculation insight and the need cost would be eighty dollars. Assuming Joe is able to sell the bench for one
for money prices to translate opportunity costs: hundred dollars, this would indicate that he would have added over twenty
dollars of value to society. Remember, prior to Joe’s efforts, the sum value
...Mises was one of the very first to realize of the resources and labor used only amounted to eighty dollars. However,
that subjective valuations of the consumers through his entrepreneurial insight, Joe was able to combine all these
(and of laborers) on the market are purely resources in such a way to create a product that was worth more than the
ordinal [they are expressible by preference sum of its individual components. Moreover, the trade is mutually
rankings only], and are in no way beneficial. Joe benefits because he gets to pocket twenty more dollars than
measurable. But market prices are cardinal he originally possessed, and the consumer benefits by receiving a product
and measurable in terms of money, and that he/she must necessarily value more than one hundred dollars. All
market money prices bring goods into parties to any voluntary trade must necessarily expect to be better off after
cardinal comparability and calculation (e.g., conducting the trade, otherwise the trade would never have occurred. In
a $10 hat is "worth" five times as much as unhampered economies, profits are always and necessarily a win-win. Thus,
a $2 loaf of bread). But Mises realized that the quest for profits by way of voluntary exchange – and not political
this insight meant it was absurd to say (as entrepreneurship – is surely a humanitarian one.
Schumpeter would) that the market It should also be noted that profits need not be monetary; they may
"imputes" the values of consumer goods also be psychic. For instance, if one were to decide to give a homeless man
back to the factors of production. Values on the street five dollars, this would not yield the benefactor a monetary
are not directly "imputed"; the imputation profit, however, the psychic pleasure he receives from the gesture is more
process works only indirectly, by means of
money prices on the market. Therefore
socialism, necessarily devoid of a market in 71 Murray N. Rothbard, "The End of Socialism and the Calculation Debate Revisited"
in The Review of Austrian Economics 5.2 (1991): 65.
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 A SPONTANEOUS ORDER MONEY AND BANKING

valuable to him than the five dollars he surrendered. Once again, such an further in any number of ways.73 If all this is true, then assets retained in the
act would be considered one whose aim is profit. It is through this concept form of cash holdings are savings just as certificates of deposit or a stock of
of psychic profit that economists are able to explain actions taken by actors food. Money is different in that its yield is expressed only in psychic terms
in the economy that deliberately result in monetary losses. Monetary profits (the peace of mind that comes from being able to fulfill unforeseen future
are merely a subset of all possible motivations. desires) and never in nominal terms, contrary to typical savings vehicles
such as equity or bonds. While the total volume of savings is determined by
the level of one's time preference (the degree to which it is high or low), the
Money As Protector Against Uncertainty proportion between our cash holdings and other saved assets is determined
by our subjective valuations regarding the uncertainty of the future.

Because money can be employed for the instant satisfaction of the

widest range of possible needs, it provides its owner with the best economically Division of Labor and Specialization
possible protection against uncertainty. In holding money, its owner gains
in the satisfaction of being able to meet instantly, as they unpredictably
arise, the widest range of future contingencies. The investment in cash The concept of the division of labor simply refers to the economic
balances is an investment contra the (subjectively felt) aversion to arrangement whereby participants specialize in different tasks and exchange
uncertainty. A larger cash balance brings more relief from uncertainty the products of their efforts with one another. The result of this
aversion.72 specialization and cooperation yields an output that is greater than what
As money is by definition the most salable good in the economy, it would be achieved if each individual attempted to produce the entire array
can be exchanged against any resource that is “for sale” that one may need of his own goods himself. To illustrate this, suppose Bob decides to
at a moment’s notice. Unlike insurance, however, it has the capacity to specialize in shoe production, dedicating a majority of his labor toward this
protect against all possible contingencies. In contrast, insurance requires end. In doing so, he expects to exchange the excess production of shoes
that one have some degree of certainty as to the particular nature of the risk with the products or services of others (e.g. for food, medicine, housing,
he expects to encounter. Thus, uninsurable risks, otherwise known as etc.) Bob has essentially decided to engage in the division of labor. The only
uncertainties, may be mitigated by adding to one’s cash balances or savings. way for Bob to abstain from the division of labor would be for him to make
In this way, money behaves as the best possible guarantor in ensuring one his own food, produce his own medicine, build his own housing, and even
that his unknown future needs may be fulfilled as they spontaneously arise. create his own clothing and shoes. However, this would not be very
Some economists consider additions to one's cash balance as a practical for a variety of reasons. First, Bob may not have ready access to
form of savings. Nearly everyone – at all times – holds some quantity of the resources requisite to produce the entire set of goods or services he
cash on them, whether in a bank account or in a wallet. This is done to desires. Perhaps Bob wants Alaskan Crab, but lives in Florida. Perhaps Bob
protect oneself from as many unforeseen contingencies as possible by doesn’t have the necessary tools to build the type of house he wants, or
retaining the most salable good in society. This utility of money proves it is maybe he does not currently have the necessary skills or physical ability to
not “barren” or “sterile” -- an unproductive asset that hamstrings economic do so. The quality of housing or seafood he could create will inevitably be
activity in the Keynesian view. In order to retain cash holdings, however, lower than if he simply traded with those who are gifted and practiced in
one must have earned some prior income. One cannot have exhausted all the creation of such goods. One may see how quickly Bob’s standard of
his possible consumptive options if he still carries cash. Cash's consumption living would plummet if he was in a position where he was required to
power is a potential. While assets remain, there is as of yet unconsumed produce all the goods he desires himself.
income. The cash-holding actor has invested this retained savings in the form One can now easily recognize the distinct advantages of the
of cash. As William Hutt noted, money held serves a yield. It is a productive division of labor. Under the division of labor, one may be able to focus on
asset that serves the one who holds it by best preparing him for the greatest one task or a limited set of tasks geared towards producing a particular
number of possible outcomes in which he might want to consume or invest good/service as opposed to the entire spectrum of tasks required to fulfill

72 Hans-Hermann Hoppe "'The Yield From Money Held' Reconsidered,” (lecture 73 William H. Hutt, "The Yield from Money Held," in Freedom and Free Enterprise:
presented at the Franz Cuhel Memorial Lecture, Prague, Czech Republic, April 24, Essays in Honor of Ludwig von Mises, edit. M. Sennholz (Chicago: Van Nostrand,
2009). 1956), 196-216.
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all his needs. The fact that, under such an arrangement, people are able to would it behoove her to quit her surgical practice in order to manage the
focus on a more limited set of tasks allows them to increase their bakery full time? Of course not, because even though she can generate
proficiency at these tasks and thus become more productive, i.e., to be able more profit than Louis at the bakery, she would be giving up her
to produce more with the same amount of labor. Moreover, because they performance at her surgical practice in order to do so. In other words, she
can choose to specialize in one field or another, they now have the would be relinquishing $1,000 in profit at her surgical clinic for the sake of
opportunity to engage in that which they have the “comparative advantage” recouping fifty dollars extra profit at the bakery. The monetary opportunity
at doing. In other words, they may choose to do that which offers them the cost of managing the bakery is $1,000. Should she commit to baking full
greatest amount of profit. Without money, it would be quite difficult to time, this decision will leave her $950 poorer per day than she was prior.
determine such profits due to calculation limitations. Who is to say Even though Louis is less apt at managing the bakery than she is, she will
producing twenty bananas a month is more or less productive than realize greater profits overall if she performs the role at which she excels –
producing ten shoes in the same span? However, in the context of a surgery – than if she managed the bakery herself.
monetary based economy, one may compare the profits yielded from
producing the twenty bananas with the profits yielded from producing the
ten shoes. It may be the case that producing ten shoes/month yields a The Money Supply
profit of fifty dollars whereas producing the twenty bananas only yields a
profit of twenty five dollars. Of course, this doesn’t mean our hypothetical
producer is prohibited from producing bananas, it simply means he now Reliability in the scarcity of the money unit is one of the chief
has an additional piece of information that allows him to more accurately criteria granting it value. An easily duplicated or produced money unit hurts
determine his opportunity costs associated with each task. Moreover, there the integrity of that unit's exchange value. Central bankers or advocates for
are large costs associated with having to switch from the task of making economic central planning often claim that contracting or expanding the
shoes, to growing food, producing medicine, and constructing a house money supply can be a great method to regulate and “stabilize” the
when compared with specializing in one of those activities and contracting economy in comparison to the spontaneous twists of free markets.
out the rest. Thus, specialization and the division of labor enable people to However, such a claim is nonsense, for to increase or decrease the amount
more easily do what they want and what they excel at doing, while at the of monetary units does absolutely nothing to increase actual wealth in
same time enjoying a higher standard of living afforded by the more society as expressed by the presence or lack of goods and services. Once a
efficient hands of others. good has achieved a large scale or universal consensus regarding its
Money enables economic actors to engage more deeply and more "moneyness,” any amount of it is sufficient to optimally perform its role. An
effectively in the division of labor due to its trade facilitation properties. For increase in the money supply without a corresponding increase in the total
instance, if a cobbler desires bacon, but is unable to find a bacon producer number of goods will only serve to dilute the purchasing power of money,
willing to trade him bacon for his produced shoes, then the cobbler must whereas decreasing the monetary units will accomplish the opposite.
resort to either producing the bacon himself, producing (or procuring) that Tampering with the money supply only serves to redistribute wealth. In the
which the bacon producer does want (and what he likely does not have the case of inflation or monetary expansion, wealth is transferred from later
desire or comparative advantage at producing), or go without. In contrast, users to earlier users, as the first users of this “newly created money” will be
the bacon producer is much more likely to accept money in exchange for able to enjoy spending it in an economy where the prices have yet to adjust
his bacon, thus allowing the cobbler to produce shoes and sell them for to the new increase in money supply. By the time this money makes its way
cash to ultimately attain the bacon he desires. down to the last recipients, market prices will have adjusted to this larger
One more example will suffice to explain the idea of “comparative money supply in the form of higher prices. Thus, the last users may have
advantage.” Suppose that Molly is a surgeon who also owns a bakery and the same nominal amount of money, but would have comparatively less
that Louis manages the bakery for her. When Molly manages the bakery, wealth than they did before the additional monetary units were injected into
she is able to turn $300 per day in profit. However, on the days she the economy. This redistributive effect of inflation is known as the
performs surgery, she is able to create $1,000 per day in profit. When Louis Cantillon effect. Thus, someone’s wealth in a monetary economy may be
manages the bakery, he only generates $250 per day in profit. In this case determined by the proportion of the money supply he wields (along with
Molly has what is known as the “absolute” or “all-around advantage”. the market value of all of his assets). In other words, the number of
Seeing that Molly is able to generate more profit than Louis at the bakery, monetary units in itself means very little. Population growth in excess of the

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growth of the money unit will simply increase the purchasing power of the
unit; no new units need be introduced. Rothbard addresses the unique
category of good money plays: Free Banking

With respect to the supply of money,

Mises returned to the basic Ricardian Banks serve two distinct functions: as safe
insight that an increase in the supply of warehouse of funds and as intermediaries
money never confers any general benefit between borrowers and savers. On the
upon society. For money is fundamentally one hand, banks come forward to meet
different from consumers' and producers' the increasing demand for the
goods in at least one vital respect. Other safekeeping, transporting, and clearing of
things being equal, an increase in the money. On the other hand, they fulfill the
supply of consumers' goods benefits increasingly important function of
society since one or more consumers will facilitating exchanges between capitalists
be better off. The same is true of an (savers) and entrepreneurs (investors),
increase in the supply of producers' actually making an almost complete
goods, which will be eventually division of labor between these roles
transformed into an increased supply of possible. As institutions of deposit and in
consumers' goods; for production itself is particular as savings and credit
the process of transforming natural institutions, banks quickly assume the
resources into new forms and locations rank of nerve centers of an economy.
desired by consumers for direct use. But Increasingly the spatial and temporal
money is very different: money is not allocation and coordination of economic
used directly in consumption or resources and activities takes place
production but is exchanged for such through the mediation of banks; in
directly usable goods. Yet, once any facilitating such coordination, the
commodity or object is established as a emergence of banks implies still another
money, it performs the maximum stimulus for economic growth.75
exchange work of which it is capable. An
increase in the supply of money causes no As Hoppe mentions, banks are absolutely crucial in not only
increase whatever in the exchange service protecting one’s wealth, but also in coordinating resources throughout the
of money; all that happens is that the economy. Banks enable entrepreneurs to pursue the most economical ends
purchasing power of each unit of money with resources that would otherwise be unemployed. However, unlike
is diluted by the increased supply of units. banking in societies dominated by fiat money and ubiquitous State
Hence there is never a social need for intervention, a free market banking system will be segregated into two
increasing the supply of money, either distinct roles: deposit banking and loan banking.
because of an increased supply of goods Deposit banking refers to the safeguarding services provided by a
or because of an increase in population. bank. People generally feel their money is better protected behind a heavy
People can acquire an increased vault as opposed to under their mattresses. Thus, many people would
proportion of cash balances with a fixed happily pay a fee in exchange for a bank’s warehousing services. The bank
supply of money by spending less and
thereby increasing the purchasing power
of their cash balances, thus raising their 74 Rothbard, “Austrian Theory of Money,” 310-311.
real cash balances overall.74 75 Hoppe, "Banking, Nation States, and International Politics" in The Economics and
Ethics of Private Property, 79-80.
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 A SPONTANEOUS ORDER MONEY AND BANKING

benefits by being paid for its services and the customer benefits by having For example, suppose Bob deposits one hundred dollars in a loan
the peace of mind of knowing his bank is professionally protected. banking institution. In exchange for letting them borrow his money, the
Competition amongst different banks offering these services will tend to bank offers Bob a five percent quarterly interest rate in return. Now,
keep prices at a minimum and ensure that various banks distinguish imagine that Joe wishes to borrow that same $100 from the bank so that he
themselves by offering more locations to conveniently withdraw or deposit may start a small business. The bank will proceed to review Joe’s credit
funds, and other important functions. In the case of a gold standard, such which includes his assets, his history of timely payments, his current
banks may offer bank notes or electronic credits redeemable in gold to be income, etc. After his credit has been evaluated, the bank may also evaluate
used by its customers in lieu of them physically carrying metal in their his business plan and determine its likelihood for success. The bank will
pockets, or as an additional form of security backstopped by the bank's then offer Joe the loan with an interest rate that corresponds to his
digital security practices. When the number of bank notes or electronic “appraised risk” as determined by the bank's investigative process. Suppose
credits offered directly corresponds with the amount of money (in this case the bank offers Joe one hundred dollars with a ten percent interest rate to
gold) in the vaults, such an arrangement is referred to as “100% reserve be paid in two months. Joe accepts the funds and two months transpire. Joe
banking.” has responsibly paid the bank the principal of his loan (one hundred
The second type of banking is “loan banking.” Under loan banking, dollars) along with the ten percent interest (ten dollars). The following
savers lend their money to the bank so that it can lend this capital to month, Bob arrives to collect his investment, at which point in time, the
borrowers. The saver lends these funds with the expectation of receiving bank may return to Bob his principal and interest or offer to keep the funds
interest payments from the bank, and the bank proceeds to lend this saved and renew the lending agreement. Even if Bob refuses the offer to continue
money in the hopes of earning more interest than it must pay. This division and decides to collect his funds, both parties benefit as both parties become
of labor benefits the saver by delegating to the bank the task of successful five dollars richer. Even Joe the borrower benefited by gaining access to
forecasting – in which the saver may have no skill or desire to perform. capital needed to start his small business sooner as opposed to his waiting
Delegating the lending to the bank would in most cases provide the later. Perhaps starting the business at that current point of time was crucial
customer with a more secure investment than if he were to lend the money to its success. This is one example of how banks efficiently coordinate the
out himself on the basis of his own judgments of entrepreneurial success. allocation of scarce resources. Their specialization in lending and risk
The bank benefits from this arrangement by having access to capital from management benefits both parties through a division of labor.
which it can now earn interest. Interest payments primarily are paid for the Money in a free market system represents real resources. In order
service of acquiring access to capital sooner rather than later. Competition for Joe to borrow money (claims to resources) now, Bob had to refrain from
between various banks will tend to minimize the differential between what claiming said resources until later. Thus, the monetary supply remained
the banks charge borrowers in terms of interest and what the bank provides unchanged during the course of this lending/borrowing process.
to savers in terms of interest paid. This is due to the fact that savers have
the incentive to select those banks which pay out the highest interest rates.
Conversely, borrowers have the incentive to patronize those banks which Fraudulent Banking Practices in the Free Market
charge the lowest interest rates for borrowing. Along with the interest rates
themselves, such customers will also be interested in the bank’s track
record, that is to say, how often it has defaulted on its debt obligations and With the advent of bank notes comes the temptation for banks to
how well it is capitalized. This tempers a given bank’s propensity to engage engage in inflationary practices and to print more notes than assets they've
in high risk lending practices. accepted in deposit. This is tantamount to the bank providing multiple titles
What distinguishes loan banking from deposit banking is that to the same set of goods. If the bank has one hundred ounces of gold in its
customers cannot expect to be able to withdraw their money at any time. vaults, but issues one hundred ounce bank notes to both Sam and Juliet,
When they loan their money, the banks are only obliged to return the whole then both Sam and Juliet essentially have conflicting titles over the same set
of their money plus interest at a predetermined point of time in the future. of goods despite the promise issued by the bank for instant redemption. In
Banks could hardly be expected to maintain interest payments on funds that other words, the bank is handing out titles for non-existent goods
savers could withdraw on demand. The bank is only able to pay savers' (promised assets which do not exist). The bank hopes to gain from this by
interest because it was first able to procure interest from borrowers which relying on its customers, Sam and Juliet, not to ask for redemption before it
exceeds the interest payments promised to the saver. is able to replenish its reserves to the point where it may be able satisfy

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both of their requests. By engaging in this practice, the bank will be able to Under a system of free banking, ...with no
earn interest on double the assets it actually holds. This practice is risky, legal tender laws and gold as money, an
however, for in a free banking system, if Sam and Juliet redeem their notes additional constraint on potential bank
simultaneously, the bank must default on its obligations and suffer fraud arises, for then every bank is faced
reputational damages which directly impact its future business prospects. If with the existence of non-clients or clients
it is true that a bank cannot make good on its outstanding obligations, it is of different banks. If in this situation
insolvent. The insolvency is only revealed at the time it fails to honor additional counterfeit money is brought
depositor agreements. The risk of this situation occurring would serve as a into circulation by a bank, it must
serious deterrent against this practice. The issuance of extra, unbacked invariably reckon with the fact that the
notes is more commonly referred to as “fractional reserve banking,” which money may end up in non-client’s hands
is the practice of holding only a fraction of what one has obliged himself to who demand immediate redemption,
redeem instantly and at any time. which the bank then would be unable to
If depositors learn that their bank is engaging in fractional reserve grant without at least a painful credit
practices, they will be more inclined to redeem their notes as soon as contraction. In fact, such a corrective
possible so as to avoid default on part of the bank. Jörg Guido Hülsmann contraction could only be avoided if the
elaborates on the necessary discount between holding money proper and additional fiat money were to go
holding bank IOUs with redemption promise.76 Bank runs can be extremely exclusively into the cash reserves of the
disruptive to an economy as many savers, having trusted banks to be bank’s own clients and were used by them
excellent stewards of the funds, lose their deposits and a cascading set of exclusively for transactions with other
systemic defaults ensue,77 hurling the economy into a recession or clients. Yet since a bank would have no
depression.78 Such bank runs could not occur in a 100% reserve banking way of knowing whether or not such a
system where all deposits are held securely without claims to them given to specific outcome could be achieved, or
third parties. Thus, only loan banking institutions would be at risk for how to achieve it, the threat of a following
default, and even this would be minimal due to competition and consumer credit contraction would act as an
preference as savers have a vested interest in lending their money to inescapable economic deterrent to any
reputable institutions. High rates of return might indicate that the bank fraud.79
institutions offering such rates would be engaged in high risk lending
practices. In any case, such defaults would be more limited and predictable A sophisticated critic may retort that banking cartels may form to help
in a free banking system, where banks are separate, competitive enterprises circumvent this limitation. However, Hoppe addresses this as well:
and not shackled to each other by central bank operations. Thus, the risk
for systematic economic distress would be virtually nil when compared to With no restrictions of entry in existence,
its fractional reserve banking system counterpart. Hoppe explains how any such bank cartel would have to be
competition between banking institutions may serve as an additional fraud classified as voluntary and would suffer
deterrent under a free banking system: from the same problems as any voluntary
cartel: Faced with the threat of non-
cartelists and/or new entrants, and
recognizing that like all cartel agreements,
76 Jörg Guido Hülsmann, "Has Fractional Reserve Banking Really Passed the Market a banking cartel would favor the less
Test?" in Independent Review Winter VII.3 (2003): 399-422. efficient cartel members at the expense of
77 Irving Fisher, "The Debt-Deflation Theory of Great Depressions." Econometrica 1.4 the more efficient ones, there is simply no
(1933): 337. economic basis for successful action, and
78 Hülsmann makes the argument that debt deflation cycles promote long-term any attempt to cartelize would quickly
economic health by reorienting the structure of production along more sustainable
monetary foundations: an economy structured purely on commodity money and
credit, without fiduciary media. Jörg Guido Hülsmann, Deflation and Liberty
79 Hoppe, ibid, 83.
(Auburn: Ludwig Von Mises Institute, 2008).
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break down as economically inefficient. government contractors, large commercial banks, and major industrial
Moreover, insofar as the counterfeit leaders thus giving this class of society the incentive to support such
money would be employed to expand fractional reserve practices. The government engages in these banking
credit, banks acting in concert would set practices because doing so makes it far easier to finance its operations. In
off a full-scale boom-bust cycle. This, too, contrast to taxing or borrowing, inflating the currency achieves a far more
would deter cartelization.80 covert pattern of wealth redistribution in the State’s favor. John Maynard
Keynes identified the benefit of inflation's obscurity when he remarked:

The State’s Involvement in Money and Central Banking Lenin is said to have declared that the best
way to destroy the capitalist system was to
debauch the currency. By a continuing
….the state’s position regarding money process of inflation, governments can
and banking is obvious: Its objectives are confiscate, secretly and unobserved, an
served best by a pure fiat money important part of the wealth of their
monopolistically controlled by the state. citizens. By this method they not only
For only then are all barriers to confiscate, but they confiscate arbitrarily;
counterfeiting removed (short of an entire and, while the process impoverishes many,
breakdown of the monetary system it actually enriches some. The sight of this
through hyperinflation) and the state can arbitrary rearrangement of riches strikes
increase its own income and wealth at not only at security but [also] at confidence
another’s expense practically without cost in the equity of the existing distribution of
and without having to fear bankruptcy.81 wealth. ...Those to whom the system
brings windfalls, beyond their deserts and
Before the state can reach its ultimate goal as stated by Professor even beyond their expectations or desires,
Hoppe, it must first gain public support for its actions. The first step in the become "profiteers," who are the object of
process of the State gaining ultimate control over money and banking is to the hatred of the bourgeoisie, whom the
establish legal tender laws which demand tax debts and private payments to inflationism has impoverished, not less
be settled in units of a specified medium of exchange. Other institutions than of the proletariat. As the inflation
may still create gold or silver coins, or other private monies, however, the proceeds and the real value of the currency
money produced by the State is mandated to be accepted by any creditor fluctuates wildly from month to month, all
(lender) as repayment for debts. Taxes are also required to be paid in such permanent relations between debtors and
legal tender, usually its own, designed fiat money. This gives the creditors, which form the ultimate
government issued money an artificial advantage over private monies as its foundation of capitalism, become so
perceived “acceptability” is increased through coercive mandate. Initially, utterly disordered as to be almost
the currency begins with promises of redemption into certain portions of meaningless; and the process of wealth-
gold or silver. However, the State and central bank will inevitably begin getting degenerates into a gamble and a
issuing extra, unbacked notes. The bank notes in such a scenario are lottery. ...Lenin was certainly right. There is
identified by Mises as "fiduciary media." The consequence of producing no subtler, no surer means of overturning
fiduciary media is inflation, which favors the earlier receivers of this newly- the existing basis of society than to
printed, fiat money at the expense of the later receivers, triggering Cantillon debauch the currency. The process engages
effects. The early receivers tend to be government agencies themselves, all the hidden forces of economic law on
the side of destruction, and does it in a
manner which not one man in a million is
80 Hoppe, ibid, fn. 18, 83. able to diagnose.82
81 Hoppe, ibid, 89.
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permitted to counterfeit in such a way, it is able to reap the

The institution that is used to mediate this process is the central concentrated benefits of such an expropriating practice whereas all
bank. The central bank is sold to the public as a “lender of last resort” others in society are required to produce in order to make money.
endowed with the purpose of eliminating the threat of bank runs as banks Thus, the central bank produces nothing but paper or digital
are now given the ability to borrow from the central bank whatever amount entries, and in return receives real wealth.
is needed to maintain immediate solvency. In addition to this role, the 2) Setting Reserve Requirements is another arm of conventional monetary
central bank is also responsible for setting monetary policy for the policy. Unlike in a competitive banking scenario, commercial banks
ostensible purpose of stabilizing the value of the money it issues as well as are now able to engage in fractional reserve practices with virtually
the growth of the economy. In the eyes of its proponents, the central bank no risk due to the oversight of the central bank. Any amount of
is to be used to depress an “overheating” economy by taking measures to money lent to commercial banks by the central bank is itself
contract the money supply, as well as to stimulate the economy during multiplied as commercial banks do not hold full reserves, but
times of low market activity by expanding the money supply through instead create additional credit from the deposit. Fractional reserve
inflation. In practice, the central bank will almost always resort to banking systems are, by their very nature, unstable. To combat the
inflationary procedures, and will seldom take measures to contract the alleged evils of “wildcat banking,” central banks will often require
amount of credit in the economy. minimum reserves in the vaults of their commercial bank clients.
The central bank’s true purposes are to finance government To illustrate how a 10% reserve requirement would play out
operations, cartelize the banking system, and win over support from the suppose the central bank deposits $1,000 in bank A, of which it is
financial elite by allowing them access to newly created money before the now able to lend $900. Let’s assume that Jerry borrows this $900
rest of society, thus concentrating ever more wealth into the hands of a and deposits it in bank B. His bank, due to the reserve
select privileged few at the artificial expense of the many. Wealth accrued in requirements, may lend out $810 of those dollars. Once the $810 is
this way is destructive of the market process as it is achieved through lent out to Max, he’ll deposit this money into bank C which will
expropriation and not the production and voluntary exchange of genuine now be able to lend out $729 of his deposit. This process will
goods and services. In order to mask its true purposes, the central bank will continue until the original $1,000 deposited into bank A has turned
generally employ obscure and clandestine means to counterfeit money and into $10,000 of newly created credit now injected into the
expand credit. Of these means, the three most common are: economy. The fractional-reserve tactics of commercial banks
multiply the amount of money they receive from the central bank
1) Purchasing Government Securities is the most direct way in which the through its “discount window.”
central bank is able to finance government operations, i.e., by 3) Setting the Discount Rate is another tool by which central banks use to
buying debt from it directly in the form of treasury bonds. To expand the money supply. The discount rate is the interest rate by
provide the funds to purchase government debt on the open which various commercial banks may borrow money from the
market, the central bank will print or create the money out of thin central bank during the “discount window.” If the central bank
air. It is able to acquire treasury bills without expending any decides there has been a significant disruption in the economy that
resources of its own. This is modern alchemy and by its very nature has caused the banking system to experience a shortage of liquidity,
counterfeiting, but what separates the central bank from any other it will allow the affected banks to borrow from its own holdings as
unscrupulous counterfeiter is that the government has given it the a lender of last resort. Thus, the lower the central bank sets the
exclusive legal privilege to perform these acts. In other words, the discount rate, the more commercial banks will be encouraged to
government has granted the central bank a monopoly over the borrow. Once again, in order to acquire loanable funds, the central
production of legal tender. Because the central bank buys bank simply creates them from nothing. However, this fact in no
government debt with newly created money, all those holding the way lessens the obligations for the borrowing banks to repay the
fiat money must tolerate a reduction in their purchasing power to loan in full with real wealth and savings plus interest. Once again,
finance the principal of this loan. Because only the central bank is if depositors start withdrawing all their funds and a particular bank
becomes insolvent, all it must do is take a “bank holiday” and
borrow the discrepant amount of funds from the central bank,
82 John Maynard Keynes, "Europe After the Treaty" in The Economic Consequences of effectively eliminating the possibility of default. Fractional reserve
the Peace (New York: Harcourt, Brace and Howe, 1919), 235-36.
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practices multiply this expansion of the monetary supply. Suppose indicate that consumers as a whole have higher time preferences; they
the central bank sets the reserve requirement at ten percent, prefer to consume now as opposed to later despite the fact that foregoing
meaning, of all the demand deposits in a given bank’s ledger, i.e., said consumption may lead to an enhanced capacity to produce consumer
the sum of all the money in all of its clients’ bank accounts, only goods in the future. Conversely, lower interest rates indicate that consumers
ten percent of this needs to remain in the vault. Now, suppose Joey have a lower time preference as a whole; they prefer to forgo consumption
and Mark each deposit $500 in bank A leaving it with $1,000 on the now so they may enjoy a greater amount and/or quality of goods at some
books. Due to the reserve requirements set by the central bank and future time. In the former case, where higher interest rates are predominate,
the promise of a bailout if it becomes insolvent, a moral hazard entrepreneurs will tend to invest in comparatively less efficient and shorter
manifests which prompts the bank to lend out 900 of those production processes which correspond more appropriately with a
demand deposit dollars. Economists call this a moral hazard, prevailing high time preference on the part of consumers. In the latter case,
because if the bank were not guaranteed a government bailout in where lower interest rates are predominate, entrepreneurs will tend to invest
the case of insolvency, then it would operate much more in more efficient and roundabout production processes that require a
conservatively. In other words, moral hazard occurs when one comparatively longer and/or greater degree of consumption forbearance in
party assumes riskier behavior because others have promised to order for the consumer goods to manifest.
bear the costs for them. In a competitive economy, banks harmonize the profit motive of
these entrepreneurs with prevailing consumer time preference (as indicated
Insofar as a market’s currency is backed by a scarce commodity, by the supply of available savings). As all savings in a 100% reserve banking
there is a concrete limitation to a bank driven inflationary process. Initially, or free banking system are real savings, they represent actual resources in
the central bank may, as was done in the United States by its central bank the economy. When there are higher savings, this means there are more
The Federal Reserve, require its member banks to deposit gold in its own actual resources available to be employed in productive investment
vaults and issue the member banks receipts or notes in return. Though an channels, thus, the low interest rates enables a larger amount of resources to
expansion of credit is possible in such a system through fractional reserve be used for productive ends. Conversely, when there are lower savings, this
banking, it is still ultimately constrained by the supply of gold specie. For implies there are fewer available unemployed resources present, and thus
example, the central bank may itself have to keep a set proportion of gold the higher interest rates ensure that these relatively scarcer resources will
specie deposits made by its member banks in the vault due to reserve only be used by those entrepreneurs who project the return on their
requirements. Thus, the gold would serve as the non-expanding and investments to be high enough to warrant paying such rates. It is in the
concrete base to this inflationary pyramid. However, as the circulation of banks' interest to only loan money out to borrowers that they expect to be
notes becomes more normalized and the people tend to less and less capable of repayment at the designated time in the future, thus adding an
associate gold with real money, the State will gradually debase the currency additional mechanism to ensure that such resources are used efficiently.
until the point where it becomes pure fiat, i.e., pure paper notes without Furthermore, should these borrowers default on their debt obligations to
redemption. Thus, when the central bank’s issued paper notes become the the bank, this will be reflected on their credit which will deter lending
new currency, there is no more physical limitation to inflation and by institutions from loaning money to them in the future without adjusting
extension to its power over the economy. The United States is under such a their interest rates to account for the added default risk. It is in this way that
pure fiat money system today, along with virtually the entire civilized world. competitive markets are able to efficiently and organically allocate scarce
resources to their optimally productive ends.
In distinct contrast, the central bank’s involvement in the economy
Austrian Business Cycle Theory produces an entirely different result. When new money is injected into the
economy via open-market operations (bond purchases) and manipulation of
reserve requirements and the discount rate, an illusion of greater savings is
In addition to the redistribution of wealth from late to early created, which, in turn, prompts greater levels of borrowing and investing.
comers, the above inflationary process precipitates artificially severe and This artificial stimulation produces a temporary "boom" period where
economically destructive business cycles. Insofar as prices are distorted consumers have not changed their consumption habits and yet a
through central bank inflation, their utility as guides for rational economic simultaneous surge in investments takes place. So, at least for a while, it
calculation is diminished. In a free banking system, higher interest rates may be possible for one to have his cake and eat it too. This illusion of

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greater savings pushes down interest rates, which misleads entrepreneurs initially creates a boom that cannot be
into thinking there are more available unemployed resources than actually distinguished from an economic
exist. Incentivized by lowered interest rates, entrepreneurs begin to engage expansion; however, this boom must turn
in longer term and/or more risky investment projects than they otherwise bust because the credit that stimulated it
would. These investments then bid up the prices for labor, capital goods, does not represent real savings but instead
and natural resources required for their completion. Because these was created out of thin air. Hence, with the
entrepreneurs are acting in a way that is consistent with the illusion of a entire new and expanded investment
larger quantity of resources available than there actually are, not all of them structure under way, a lack of capital must
will be able to finish their investment projects. The prices for the goods and arise that makes the successful completion
labor will increase over their originally projected amount, requiring of all investment projects systematically
entrepreneurs to borrow more money than originally intended in order to impossible and instead requires a
complete their projects. Eventually, in order to prevent a full-blown contraction with a liquidation of previous
currency crisis, the banks will cease lending out more money to all of these malinvestments.83
investors at the interest rate they are seeking thus forcing liquidation and
the abandonment of their projects. This will create a ripple effect In truth, the only thing that must be done to ensure a tendency
throughout the economy as the sudden decrease in demand for laborers toward efficient and ethical banking systems is to ground the legal system in
and “early stage capital goods” in these projects generates even more losses. the private property ethic. This naturally entails abolishing the State and
Such decrease in demand for labor will take the form of layoffs. The allowing the organic governance of the free market to reign. The
unemployed workers – who may have otherwise been actively used for spontaneous order that is derived from this bottom-up approach produces
more productive and sustainable ends – are now unable to produce for the greater harmony between self and societal interests than any central planner
period of time it takes to find new employment. The preceding investments could possibly achieve.
made under the illusion of greater savings are what are known as
“malinvestments.” It is at this time that the malinvestments will have to be
“liquidated,” i.e., halted and their components sold off or freed up to be
used by others willing to purchase and put them to more productive use,
usually at a substantial loss to the entrepreneur. Mass unemployment and
capital liquidation is recognized as the "bust" period in the business cycle.
As opposed to allowing this market correction or liquidation of
malinvestment to occur, the central bank will often times inject even more
money and credit into the economy, attempting to rebuild an uneven
structure of production, prolonging the boom, and setting the stage for an
even more severe bust in the future. In the long run, this is much more
wasteful than allowing the banking system to operate organically, as many
hours of labor and resources are used up during the boom cycle that are
ultimately destined for bust which could have instead been used for more
productive and sustainable ends. Additionally, more labor, time, and
resources will be used to “liquidate” these projects so that their component
resources may be freed up for use elsewhere (an expenditure only made
necessary by central bank interference). Hoppe summarizes this process:

Yet in addition, this time a boom-bust

cycle is also set in motion: Placed at a
lowered interest rate, the newly granted
credit causes increased investments and
83 Hoppe, ibid, 82.
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Competition

Chapter Five In a free market, all businesses are competing for consumer
patronage. Competition exists between all firms in every industry. For
example, one who sells ice cream competes not only with Ben and Jerry’s,
MONOPOLIES AND CARTELS but also with movie theaters, as one can always choose not to purchase ice
cream and instead attend the movies.
This is the true meaning of cost: the foregone next most-favored
THE NOTION OF a “freed market” or an “unhampered market” is a course of action. Should one choose to spend the afternoon having a
conception of a market operating quickly, spontaneously, and sundae at an ice cream parlor, he cannot also spend it at the cinema. One
unpredictably. It is a market where every person can negotiate the terms of cannot be at both places at the same time. Hence, the price and
every exchange he makes and fully owns every good he intends to trade. It attractiveness of the movie is relevant to one's decision when choosing to
is a system of maximally free trade. Taxes, tariffs, quotas, price restrictions, buy ice cream, not merely the price and attractiveness of the ice cream.
mandated licensure, labor regulation, and intellectual property never exist in There are two types of competition: active and potential. Active
this market. Everyone is free to copy and remix others' work, acquire competition is the businesses or competitors that actually exist today.
cheaper materials, and produce a good in any industry. With the absence of Potential competition, on the other hand, consists of those businesses or
aggressive barriers to entry into any industry, competition becomes fierce competitors which may manifest should a given business' services or
and unrelenting. Without occupational licensing or securities regulations or products satisfy consumer demands less and less.
taxes by which to abide, even small discrepancies in customer satisfaction
can allow newcomers to instantly topple an established giant. Operations
that produced the same service indefinitely would be rare and unsuccessful. Defining Monopoly
These dynamic markets organically emerge from the free, spontaneous
interplay of people.
This environment is vastly different from what exists today, thus There is much confusion over what constitutes a monopoly. A
one must relieve himself of prejudice generated by his experience of the common definition of monopoly is “a firm that is the single provider of a
current reality if he wishes to fully comprehend the contrasting merits of particular good or service.” This definition, however, is useless for a
truly freed markets. The salient characteristic of such markets is the absence number of reasons. Defining a monopoly as a single provider implies the
of systemic aggression. Such aggression is what enables consumer and smallest differentiation of a product or service could, in turn, bestow upon
worker exploitation, and is indeed worthy of vigorous opposition. the creator a monopoly over its provision. For example, Jackie may have a
Surprisingly, the most powerful and destructive perpetrator of systemic monopoly on purple polka dotted peppermints or Joe on magnolia-flavored
aggression is the State itself. To mask this ugly truth, the State has cleverly popsicles. Even with regards to homogeneous goods such as wheat, one
disguised itself as the protector of the weak, poor, indigent, and could still hold a monopoly on “Robinson Wheat” and Joe could hold a
disenfranchised. Moreover, it claims to be a necessary, if not sufficient, monopoly on “Joe Wheat,” as the wheat produced could be differentiated
institution to carry out this purported role. To complete this deception, the by how it was grown, what fertilizers or nutrients were added, etc. This
State and its sympathizers have taken great strides to indict the unfettered definition of monopoly does not yield us any pertinent or useful economic
market as the primary culprit of the commoner's tribulations, though the information as it virtually renders everyone a monopolist. Nobody else can
truth is quite the contrary. One manner in which the State inflicts great offer the unique labor contributions of other people; we are all
harm upon us is by its manipulation of competitive markets. monopolizing our skillsets.
The term “monopoly” itself evokes negative feelings, but to what
did the term “monopoly” originally refer? A monopoly originally meant an
exclusive privilege to produce or sell a given product or service, granted by
the King. It was a privilege given to favored producers or guilds for them to

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produce without any competition. Should any upstart break from the concern regarding the manifestation of such “monopolies” is that they may
privilege, the King's might would be summoned. Thus, a monopoly is a charge exorbitant prices with economic impunity. Should they take
creation of the State. Murray Rothbard explains: advantage of their position, however, there always exists potential
competition which may serve to temper their behavior. For the sake of
Monopoly is a grant of special privilege by the argument, however, let us assume that a single provider of a given good or
State, reserving a certain area of production to service does arise. As the absence of aggressive barriers to entry into any
one particular individual or group. Entry into industry is inherent in free markets, the threat of a potential competitor will
the field is prohibited to others and this be much stronger relative to the case in which the State imposes artificial
prohibition is enforced by the gendarmes barriers, and sometimes even prohibitions, on competition in various
of the State.84 industries.
Let’s entertain the worst case scenario: A water company decides to
Using this definition, consumers are justified in opposing triple its rates without a corresponding increase in the cost of production,
monopolies as they imply the threat or use of aggression to uphold and how do market participants respond? In the first place, future, potential
maintain, and therefore constitute a distortion of natural market dynamics. customers would be deterred from moving to this town due to these
Without the Statist apparatus of compulsion, there could be no special exorbitant rates, and current residents are incentivized to move elsewhere.
grants given to certain businesses. Free entry is the default condition for all This would, of course, result in a loss of business for the water company.
industries, and, as such, monopolies created by the power of the State could Moreover, the consumer will be incentivized to act more conservatively
not exist in a truly free market. with his water. Perhaps husbands and wives will take showers together,
decrease how often they water the lawn, or install rainwater collectors in
their backyard. How the conservation is accomplished is irrelevant. Less
Natural Monopoly water will be used, and a decrease in the usage of water translates into a
decrease of revenue for the water company. Worse yet, even if the water
company decides to revert back to its original rates, its customers may have
In the words of Thomas Di Lorenzo: grown fond of these water conservation efforts and continue their practices
nonetheless, thereby permanently lowering the income of this water
A natural monopoly [a single service company. However, if the water company maintains these exorbitant prices
provider] is said to occur when production despite the preceding events, then a competing water company from the
technology, such as relatively high fixed next town over may decide to move in and start operations if the benefit of
costs, causes long-run average total costs an alternate provider outweighed the costs and inefficiencies of establishing
to decline as output expands. In such redundant infrastructure. If, in response to the presence of a new
industries, the theory goes, a single competitor, the old water company decides to return to its lower rates, the
producer will eventually be able to produce customers’ trust in it will have nevertheless been undermined. Consumers
at a lower cost than any two other may choose to switch over their services to the new water company even if
producers, thereby creating a ‘natural’ it does charge marginally higher prices, so long as it can demonstrate a long
monopoly. Higher prices will result if more history of stable and predictable prices. Furthermore, a common practice
than one producer supplies the market.85 before developing any land in an area is to make contractual agreements
with surrounding utility companies regarding fixed pricing. This type of
Some commonly cited examples of these “natural monopolies” reassurance will incentivize prospective developers to build homes and
include utility providers such as gas, water, or electricity companies. The businesses on this land. Finally, for a water or electric company to have
achieved a “monopoly” status in the first place, it would have first been
84 Murray N. Rothbard, "Monopoly and Competition" in Man, Economy, and State: A
required to gain the trust of their customers and to have provided a more
Treatise on Economic Principles ; with Power and Market: Government and the satisfying service than their actual or potential competitors. The likelihood
Economy (Auburn: Ludwig Von Mises Institute, 2009), 669. of this company fundamentally changing business practices that made it
85 Thomas J. Dilorenzo, "The Myth of Natural Monopoly" in The Review of Austrian successful in the first place is relatively low. This is all, of course,
Economics 9.2 (1996): 43-58.
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speculative to some degree, but hopefully the hypothetical may demonstrate minimum wages, taxes, and even explicit grants of monopoly over certain
the means by which men and women in the market may effectively deter, industries, can a given firm or cartel exploit the consumer. Exploitation of
prevent, and mitigate all activity that is harmful to the consumer. This same the consumer only exists in this arrangement because the State is able to
line of reasoning may be applied to any other firm that enjoys a large share insulate a given business from market forces via legislation. Conversely, in a
of a given industry. purely free market, the survival of these businesses would be predicated on
how well they could satisfy the desires of the consumer relative to existing
and potential competition. Where there is choice and an absence of
Cartels coercive barriers to entry, there can be no exploitation. Finally, there are no
rights violations associated with cartelization, as it merely represents the
pooling of resources on an inter-company scale. Having property rights
A cartel is a group of individual firms in like-industries which over resources entails the right to pool them with the resources of others in
decide to coordinate their practices as a means to maximize profits. These a voluntary manner.
coordinating efforts can take the form of setting production quotas or
“fixing” prices. From this definition, one may surmise a few inherent Cartel Production Restriction
weaknesses of a cartel and why such an arrangement, if intended to secure
extra profit by maintaining prices above the market rate, is almost assured One danger often pointed out as being possible in an unfettered
to be temporary and tenuous in a purely free market. market is the act of a cartel restricting production as a means to keep the
The first and most obvious complication in any cartel is price of a given good higher than it otherwise would be. The critics of this
determining unanimously amongst the individual members exactly where method are correct insofar as the purpose is concerned: to maximize
the prices for their goods or services should be set and/or how much each profits. However, this is no different than any other market activity.
member firm should be permitted to produce. Of course, the more efficient Take rice, for example. If a cartel of rice producers in combination
members are likely to be the most uneasy about such an arrangement as creates two hundred tons of rice in a year, but comes to learn that one
they would likely resist any restrictions on their own production for the hundred tons would yield the greatest profit, then it will naturally begin to
sake of the less efficient member firms. Thus, at the soonest feasible release only one hundred tons of rice into the market. This sort of
opportunity, it is likely that these more efficient members will emancipate “collusion” is deemed as predatory by many mainstream economists, for
themselves from the cartel. Further, under such an arrangement, all the had the cartel released all two hundred tons, presumably the larger supply
members will be tempted to “cheat” by either lowering their agreed upon would have translated into lower prices per unit for the consumer, leaving
prices or increasing their agreed upon production as a means to secure a him ostensibly better off than had the cartel restricted their production to
larger share of the market outside of officially established lines. Finally, even one hundred tons.
assuming a cartel is able to successfully coordinate the actions of its If one hundred tons is more profitable, the rice producers will
members and to reconcile all of their disparate interests, there would still be decrease their production in the future accordingly. The materials and/or
the issue of potential outside competition. The main purpose of a cartel is labor required to produce two hundred tons will exceed the materials
to coordinate with other firms in the same industry so as to generate greater and/or labor required to make the one hundred tons. The excess resources
revenue for their services than they could otherwise earn. However, the will now be freed up and available for use in the production of other
higher the prices – or the lower the production limit the cartel sets for its demanded goods or services. The influx of these additional resources being
members – the more vulnerable the cartel becomes to outside competition funneled into more valuable sectors of the economy, all other things equal,
undercutting the cartel’s prices and taking away its valuable customers. will cause a rise in the overall standard of living. Therefore, on net there is
The difficulties of coordinating efforts among independent firms, no restriction of production. In fact, the act of the rice cartel reducing its
combined with the potential for outside competition, renders the overall output will have resulted in a greater net production of wealth, as this
consumer-unfriendly cartel an unlikely market arrangement. It is important would permit the excess resources to be allocated to more profitable ends.
to remember that cartels today do operate outside market forces in an This same line of reasoning is equally applicable to a single large firm which
exploitative capacity, but they are only able to do so by purchasing and decides to lower its production.
acquiring influence over the State. Only through the application of State-
mandated price ceilings, price floors, regulations, occupational licensure,

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Potential Benefits of Mergers or Cartelization be the case that the overall dissatisfaction of how this product or service is
being offered would generate an impetus for someone to invent a
technology that renders it obsolete. For instance, the invention of a hydro-
It should be noted that large firms or cartels in freed markets are powered hover car may render fossil fuel-based automobiles obsolete due
likely to yield a positive effect for the consumer, otherwise they would to lower maintenance costs, cheaper fuel, and shorter transit times.
either dissolve or be out-competed by more agile newcomers. One major Technological developments, however, do not necessarily have to
benefit to consumers is due to economies of scale. This is the principle that be in the form of different products which make the former obsolete. They
suggests that with more resources and capital goods at one’s disposal, the could very well be developments that permit alternate means of production
easier it becomes to maximize the efficiency of productive output. which prove to be far cheaper. There are truly a myriad of ways in which
This is true for a number of reasons, the first of which is the one may take on an incompetent firm in a capital-intensive industry. In a
possibility of bulk purchasing. Typically, buying in bulk yields a lower price free market where there are no aggressive barriers to entry in any industry,
per unit of whatever it is being bought, because the seller of said bulk good the threat of economic exploitation via business practices is virtually nil. In
is typically happier with a larger guaranteed purchase at a lower price than fact, it is complete economic liberty that is the greatest defense against
he is with taking the risk and the extra time of making more sales of smaller exploitation and predation. Take, for example, the notion of “predatory”
quantities at higher prices. Moreover, the larger the firm, the more it is able price cutting. The idea that any form of price cutting could be "predatory"
to benefit from the division of labor, specialized machinery, lower overhead is absurd from the start, because it implies that some sort of injustice can be
costs per unit of output, advertising, access to cheaper credit, established committed by a firm deciding to lower the prices of its goods or services
lines of transportation and logistics, etc. relative to its competitors. The owner of any given good, or the provider of
Further, with access to greater amounts of capital, a cartel or any service, has a right to charge whatever price he wants for whatever it is
recently-merged firm can afford to invest in more productive capital goods he is selling, and likewise the consumer has the right to either purchase or
which were once prohibitively expensive. Once this firm is able to enjoy the not purchase whatever is being sold.
benefits of greater production afforded by the newly acquired capital goods, The common claim is that a large firm will take advantage of its
the employees will in turn be able to produce more with the same amount economies of scale and lower its prices to a level that its smaller
of resources, increasing their labor productivity. This would create the competitors cannot afford to maintain, thereby running them out of
tendency to command higher wages for employees and/or to offer the business. This “cutthroat” firm will then proceed to raise its own prices to
consumer lower prices without negatively affecting one's profit margin. exorbitant levels that were previously tempered by the presence of
The difficulty for any one person to enter into a given industry is competitive forces. Without State support of monopoly privileges, however,
diminished insofar as the current provider(s) are not sufficiently satisfying there is always competition, whether between firms in other industries or
consumer demands, by either producing faulty (or undesired) from potential future competition. It is never possible to price one’s goods
products/services or by charging prices that are "too high." If this is the or services without taking into consideration, at the very least, the potential
case, there will be a large demand for an alternative. If the number of of future competing producers being attracted by higher selling prices.
unsatisfied consumers becomes substantial, it would become clear that an Furthermore, the smaller businesses who can’t afford to sell their
alternate provider could make a great deal of money and potentially take goods or services at such a low price, even temporarily, could cease
many customers from the incompetent, ossified firms. operations and buy up its competitors' now cheap goods. A smaller firm
To overcome the difficulties of breaking into established markets, could then sit on the inventory until the larger firm decides to raise its
an entrepreneur who has a spectacular and compelling business model may prices back to normal levels, thus defeating the purpose of starving the
seek "venture capital." There are many wealthy investors who are looking small firms. This "predatory price cutting" would also allow the consumer,
for ways to earn a positive yield as opposed to having financial capital sit at least temporarily, to enjoy a discount bonanza. The money the consumer
idle. In such an environment, investing in an entrepreneur with a solid saves could then be used to satisfy various other desires, increasing his
business plan could prove to be an enticing and lucrative option. standard of living. This large "predatory" firm would, in the long run, be
Alternatively, an entrepreneur may take out loans or sell shares of his shooting itself in the foot by using such a foolish method to attempt to
company as a means to raise the funds required for its creation. secure a greater share of the market. Moreover, even if the firm is able to
In many cases, entrepreneurs are competing with the current offer these prices without suffering any losses then so much the better. The
incompetent firm or cartel in the same industry. However, it may very well other businesses which fail and liquidate will free up resources to be used

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by more efficient firms, in either the same or a different industry. Once

again, the result of this would be an overall increase in the standard of living
for all consumers.

The State as Ultimate Monopoly

Chapter Six
INSURANCE
Anyone who would advocate for State intervention as a means to
break-up and prevent the formation of monopolies (whether defined as
"single provider" or "exclusive privilege") would be caught in a IN A FREE market society, insurance may play a central role in the
contradiction, as the State itself is the greatest and most exploitative operation of many services ranging from security, title dispute resolution,
monopoly of all. the alleviation of the devastating effects of natural disasters, and more.
The State has a legal monopoly on the right to use aggression However, there is a large amount of misconception present in the current
against others in the form of taxation and compulsory edicts (legislation). environment as to the nature and proper scope of insurable events due to
Not only must “customers” pay into its operation without regard to their massive interference and misinformation propagated by the State. This
consent, but they must surrender to the rules its internal processes chapter will focus on the general nature of insurance, and its corresponding
determine at all times. Additionally, the State has a monopoly on the power and limitation in free markets. With this insight, it will become
provision of security, and has anointed itself as the ultimate arbiter in all markedly easier to understand exactly how other services may be feasibly
conflicts, including those conflicts which involve its own agents. It provided by individual actors, through the use of insurance, in a free
maintains this monopoly by the threat and application of aggressive force, market. A natural starting point for this topic will be to examine the nature
and thus meets Rothbard's criteria for monopoly. of insurance itself. Hoppe describes the incentives each person faces in an
Agents of the State are motivated by profit and self-interest just like insurance pool:
any given businessman. However, what separates the businessman from the
State is that the former has to persuade you to pay for whatever is being Any insurance involves the pooling of
offered, whereas the latter demands its citizens pay for its “services,” and individual risks. Under this arrangement,
unilaterally alters the price and scope of the "services" offered. Moreover, if there are winners and losers. Some of the
payment towards an institution (the State) is guaranteed, then its services insured will receive more than they paid in
will tend to diminish in quality and increase in cost. The only thing that premiums and some will pay more into the
tempers the power of the State is its need to maintain perceived legitimacy. system than they ever get back. This is a
Thus, if one's aim is to eliminate systemic, monopoly exploitation, then the form of income redistribution from the
perceived legitimacy of the State must be undermined. Various means may healthy to the sick, but the characteristic
be employed to this end, including widespread education, social outreach, mark of insurance is that no one knows in
peaceful parenting, the development of the counter-economy, the use of advance who the winners and losers will
strong encryption, and the formation of free enclaves outside the grip of be. They are distributed randomly or
the State. unpredictably, and the resulting income
redistribution within a pool of insured
people is unsystematic. If this were not the
case — if it were possible to predict the
net winners and losers — the insurance
losers would not want to pool their risk
with the insurance winners; they would
seek to pool their risk with other "losers"
at lower premiums.

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… Now even if the insured themselves do heterogeneous risks were to be pooled together, then the less at-risk clients
not recognize that there are systematically would be effectively subsidizing the more at-risk clients in the form of
predictable winners and losers, free higher premiums. As a consequence, these lower at-risk clients would be
competition in the insurance market would incentivized to relieve themselves of this coverage in the pursuit of a
eliminate all systematic redistribution company that charged premiums which corresponded more closely to the
among the insured. In a free market, any actual risk they present. Finally, for a risk to be "insurable" at all, one must
insurance company that engaged in any be unable to predict with relative certainty those clients who will be
systematic income redistribution (mixing "winners" or "losers" as defined above. If the winners or losers were able to
people with objectively different types of be identified in such a way, then insurance companies would likely refuse to
risks into one single group) would be out- insure the would be "winners" and the would be "losers" would likewise
competed by any company that did not refuse to purchase insurance.
engage in this type of practice. Another A delicate balance is sought in the insurance industry, where the
insurance company might realize that there upper limit of what may be charged is tempered by the presence of other
are people who sit behind desks and rarely competitive industries willing to lower their premiums offered, and the
fall off their chair and injure themselves. lower limit is tempered by the desire to avoid negative cash flows, or losses.
They would recognize that they could To more effectively determine optimal pricing at any given point in time,
profitably offer a lower premium to desk insurance firms will be compelled to engage in continual in-depth research
jockeys and insure them in a separate pool regarding the field covered. Determining the premiums for natural disaster
from the professional athletes. And by occurrence, for instance, will largely be based upon a given client’s
offering lower premiums, they would of geographical residence. In order to determine a price figure for this client,
course lure away those people who had the insurance agency in question will have to invest in research that reveals
previously been mis-insured. As a result, the risk of such an event occurring in the proximity of the client’s residence.
the various companies that had mis- Naturally, those companies that attain more accurate data on such risks will
grouped people (by mixing their low-risk be at a relative advantage to their competitors as such information will
clients in the same pool with their high-risk reveal more precisely the potential risk and frequency of its payouts to
clients) would have to raise the premiums clients. This information will allow an insurance agency to ascertain the
for their higher-risk clients to their “lower limit” of what it is willing to charge its clients with greater precision.
naturally higher level.86 The incentives mentioned above will drive these insurance
companies to determine ever more refined groupings and sub-groupings for
“Winners” and “losers” in this context simply refers to those their clients. This process of discrimination will likely be based off of
clients who received more (winners) or less (losers) in reimbursements than objectively verifiable criteria and not subjective bigoted prejudice – as the
he/she paid into the system. This should not be confused with someone former will result in greater market share and profits and the latter in a loss
who comes down with cancer which his insurance covers as being a winner of market share and losses. In other words, if a company uses poor data (or
in the general sense of the term. Furthermore, when Hoppe references unverifiable prejudice) to determine prices, it will either overcharge for its
income redistribution from the “healthy” to the “sick,” he is referring to services driving clients away to lower cost alternatives or undercharge
those who didn’t experience the occurrence of a covered risk to those who relative to actual risks, resulting in losses, which will either cause the
did. This clarification may seem obvious. It is important, however, to make company to alter its practices or go broke, thereby freeing up the resources
clear that the above description applies to all forms of insurance. The most it once commanded to more efficient and profitable firms in the
efficient way to pool clients, given the goal of insurance is to bear risk, is by marketplace.
grouping together those who have like or homogeneous risks (at least to the
extent of which may be objectively determined). If clients with different or

86 Hans-Hermann Hoppe, "The Economics of Risk and Insurance" (lecture presented at

the annual Mises University, Auburn, Alabama, July 2001.
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Risk and Uncertainty uncertainties is to accrue savings in the form of money. This is because
money, in contrast to any other good, allows its holder to acquire the
maximum amount of uncertain goods at uncertain times/locations in the
Risk and uncertainty are categorically different phenomena. Risk future. Should one of our duelists take on injuries, it would be far easier for
refers to a chance occurrence in a knowable long-run probability him to acquire medical care by paying the asking monetary price, as
distribution. Uncertainty refers to a chance occurrence in which no opposed to attempting to barter for it.
information regarding probability is known. Mises introduces the terms Events that fall within the category of "class probability" are those
“class probability” and “case probability” to refer to measuring the which are known to occur at relatively constant frequencies within a given
probability of repeatable events and unique events, respectively. Those set of parameters. An example of an event that falls into the category of
events whose approximate likelihood can be known from repeated testing, class probability is coin flipping. The circumstances behind coin flips are
such as the odds of a coin flip, can be mitigated by the use of insurance. approximately the same, and it has been demonstrated through repeated
The likelihood of one's property catching fire can be predicted on the basis testing that the odds of a given coin falling on heads or tails is 50/50. In
of long-run frequency distributions and thus, by acquiring insurance, one other words, because fair coin flips are nearly identical, one may extrapolate
can defend himself from the consequence of a fire. It is only possible to the probability of an outcome for a particular coin flip based on trends
determine risks for classes of people or events, but not for singular events observed from the results of numerous past coin flips. Another example of
or people. Mises affirms this point “We know or assume to know, with a repeatable event is a lottery. One knows from the outset that there will be
regard to the problem concerned, everything about the behavior of a whole a lottery winner, however this knowledge does not reveal to him whom the
class of events or phenomena; but about the actual singular events or particular winner will be. Thus, because it is known that there will be only one
phenomena we know nothing but that they are elements of this class.”87 winner of a lottery, the likelihood that any one person may be the winner
The danger presented to someone without insurance is quantifiable; the risk can be appraised and quantified based on the proportionate amount of
of one's property catching fire in the future can be extrapolated from the tickets he purchases with the total number of tickets available. The ability to
whole set of past fires. Because the probability of one's house catching fire appraise and quantify the risk of such an event occurring, along with the
is determinable, it is considered a member of “class probability.” inability to definitively determine who the particular winner will be, renders
Conversely, those events whose probability cannot be determined it viably insurable.
by any past outcomes are uncertainties, and have no determinable If it were possible to determine or predict the occurrence of a
probability of occurrence. Suppose Billy the Kid and Jesse James enter into particular event with a high degree of certainty, then insurance would be
a duel. In such a case, it would be impossible to determine the probability unnecessary. Insurance is only valuable insofar as the various particular
of a given outcome, as each of their prior duels would have involved a occurrences of events are unable to be predicted with relative certainty. If
unique context and environment. For instance, their prior opponents may an insurance company were to attempt to cover a highly predictable
have had different skill sets, felt ill, carried a different fire arm, or occurrence, then the presence of competition in the insurance market
maintained it differently. Perhaps the humidity was higher, the sun brighter; would render coverage for the event unprofitable. In such a situation, it
there may have been a distracting member in the audience, either The Kid would be cheaper for one to save up money oneself, as the insurance
or James may harbor emotional attitudes about each other, perhaps the company would not be willing to charge less than what it knows it would
landscape offers greater/lesser cover, etc. All of these contingencies affect have to pay out in the future. In addition, it would also have to charge more
the circumstances of the current duel, and it would thus not be an to cover its operating costs, rendering its service more expensive than
approximate replica of past duels. The outcome of a duel is uncertain, not merely saving up for this impending disaster oneself. An example of
risky. Risky implies knowledge of the probability of occurrence. Other something an insurance company may be unwilling to cover is the
uncertain events include the presidential election of 1944, the performance purchasing of glasses, contacts, or laser eye surgery for a client who is
of athletes, the creation of art, the emergence of social movements and known to have deficient eyesight prior to being covered. The insurance
revolutions, entrepreneurial activities, and many more. These events have company would understand that it is highly likely that this client would need
uncertain outcomes as they all occur within heterogeneous circumstances. to purchase some good or service which treats deficient vision. Thus, in
These are not insurable events. The best way to prepare for such order to be profitable, the rate the agency would have to charge for this
coverage would cost the prospective client more than if he just purchased
said good or service directly. Mises clarifies the strict distinctions between
87 Mises, "Class Probability" in Human Action, 107.
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classes and members of a class: have had similar frequencies in the past of being hit by hurricanes (or
grouped with others who have similar overall risks to be hit by hurricanes as
We have a complete table of mortality for determined by relevant meteorological or geographical criteria). Relative to
a definite period of the past in a definite the other members in the insurance pool, one's individual actions will not
area. If we assume that with regard to increase or decrease the chance of being hit by a hurricane. The insurance
mortality no changes will occur, we may company will likely assess what measures one has taken to defend against
say that we know everything about the such damage. For instance, they may offer lower premiums in exchange for
mortality of the whole population in the construction of twenty-foot walls around one's residence. Such actions
question. But with regard to the life will be what are used to determine pooling, and, in turn, what premiums
expectancy of the individuals we do not one will be charged. Any additional risks taken by subsequent actions not
know anything but that they are members considered in the risk appraisal will likely not be covered by the insurance
of this class of people.88 agency. That is to say, individual behaviors or actions not expressed to the
insurance agency when it appraises your risk fall into the realm of personal
In addition to the characteristic of a particular event being highly or individual responsibility, of which the insurance company has no part.
predictable, another condition that renders a particular event “uninsurable” An example of something that is undeniably uninsurable is
is whether or not its occurrence can be largely affected by the prospective committing aggression. Any given person is fully in control of whether or
client’s individual actions. In other words, if one is able to affect the risk of not he/she decides to initiate uninvited physical force against another and,
an event transpiring through his deliberate behavior, then this event is not as such, no insurance can be taken out for this action. An insurance agency
one for which insurance can be taken out. Hoppe elaborates: which attempted to insure clients against the risk they will commit
aggression will soon go broke as clients will be incentivized to engage in
Every risk that may be influenced by one's aggression deliberately for the sake of receiving insurance payouts. This
actions is therefore uninsurable; only what should make clear the financial untenability of offering insurance against
is not controllable through individual those risks which are largely within one’s control.
actions is insurable, and only if there are Any insurance company who refuses to pay out for covered claims
long-run frequency distributions. And it would be considered fraudulent if they are truly in breach of contract.
also holds that if something that was Should they be found in breach of contract, then the matter may be
initially not controllable becomes handled via private arbitration. The arbitration agency used and the process
controllable then it would lose its taken for any perceived breach in contract will likely be agreed upon by the
insurability status. With respect to the risk client and insurance agency in their service contract. As most people are
of a natural disaster — floods, hurricanes, concerned with the threat of not being indemnified, they would likely prefer
earthquakes, fires — insurance is obviously those insurance agencies which accounted for such contingencies as
possible. These events are out of an opposed to those who did not account for them. As a consequence, the
individual's control, and I know nothing former insurance agencies, all other things equal, would tend to drive the
about my individual risk except whether or latter ones out of business, if not cause them to change their own policies
not I am a member of a group that is, as a accordingly. However, even absent any legal rulings, if a given insurance
group, exposed to a certain flood or agency develops a reputation for not granting payouts to its clients, they will
earthquake or fire risk.89 quickly lose business to eager competitors with more attractive offers. Of
course, it would also be in their competitor’s best interest to maintain watch
Imagine a scenario involving Florida coast customers purchasing over this type of foul play so as to absorb any disgruntled clients.
hurricane insurance. Obviously, their choice to live near coastal areas will be Unfortunately, in today’s environment, the utility and cost of
reflected in the premiums they pay. This is because the insurance company insurance is greatly skewed against the consumer’s favor by State
groups one with others who live in similar proximities to the coast and who interference taking the form of regulations, taxes, minimum coverage
requirements, and prohibitions against various types of discrimination – up
88 Mises, ibid, 107-108. to and including pre-existing conditions in the health insurance markets.
89 Hoppe, “The Economics of Risk and Insurance,” 2001.
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 A SPONTANEOUS ORDER

Regulations and licenses serve as aggressive barriers to entry into various

industries, resulting in decreased competition, higher prices, and less
availability. Mandated coverage requirements force many to buy more than
what they need, neglecting what those resources could have serviced if they
were tailored to one's personal situation.
The preceding analysis is simply meant to be an evaluation of what
Chapter Seven
types of insurance practices will be financially viable in a free market and
which ones will not. There is no question that any insurance company may HEALTH CARE
offer coverage for anything it deems appropriate, to include insurance
against suicide or self-inflicted arson; it’s just likely that such practices will
result in huge losses in revenue and business to their more sensible UNDOUBTEDLY, THE PRESERVATION and furtherance of one's life
competitors. Thus, the true scope of that which may be covered efficiently ranks as one of the most potent driving forces of man. Many individuals
and to what extent will ultimately be revealed by the market place in the cite the paramount importance of health care as the reason that its
varying degrees of profits and losses. Remember, profits earned without provision should be generously supported or completely provided by the
aggression or legal favoritism represent value added to society, as they State. However, this reasoning seems peculiar, because the more
require an entrepreneur to combine certain inputs in such a way that they fundamental human needs for food, water, and shelter are largely provided
are worth more together than they are separately. We may rely upon such by free market forces.90 As in all other industries, however, the free market
businessmen to work in pursuit of providing value to society as a whole, for provision of medical care is not only more ethical, but also more effective at
achieving this end results in their greatest personal gain. The market place providing more accessible and higher quality treatment than any state-
reveals the illusion of the personal gain/social gain dichotomy and instead regulated or provided health care service.
serves to align the two, the only assumption being that man acts towards his In contrast to today’s environment, health insurance in freed
own interests. As for those who do not add such value, their command markets will likely play a much smaller role. This is due to the economic
over resources will be diminished in the form of losses and be increasingly considerations discussed in the previous chapter. Hoppe provides some
transferred to those who use them in such a way that values society the relevant commentary:
most (as measured by profits). This is the way in which markets perpetually
equilibrate in light of the ever changing advancements in technology, The first thing we can say is that sickness is
consumer demand, and the supplies of various goods so as to allocate all insurable only insofar as the health risk for
scarce resources in a manner most favorable to both our long and short a particular group is purely accidental. Such
term interests. is the case with certain forms of accident
insurance, or even for events such as
cancer. But for most health risks, we
would have to say that they fall into the
province of individual control, and very
little in this field is actually insurable. Such
risks must be assumed individually and
must be paid for out of individual savings.91

In other words, insurance is most effective when it can group a

class of individuals who all share common levels of risk and whose
coverage extends to those events which are largely unforeseeable and
random in their occurrence. Thus, health risks which are largely in one's

90 Of course, there are subsidies, regulations, and taxes present in those fields as well,
but by comparison the State’s intervention is much smaller in these industries
91 Hoppe, “The Economics of Risk and Insurance"
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 A SPONTANEOUS ORDER HEALTH CARE

control are not "insurable" as they are neither unforeseeable nor random in this, much of this mandated coverage includes risks which should not be
occurrence. If the occurrence of a particular event may be systematically insurable such as alcoholism, drug addiction, and the subsidization of
predicted, then any attempt to cover this would undermine the purpose of predictable, routine checkups. These ailments are often self-inflicted or, in
insurance. That is to say, insurance is intended to act as a sort of lottery in the case of pre-existing conditions, are clearly foreseeable. The willpower to
the sense that each of its individual clients are largely uncertain in advance resist submission to alcoholism and drug addiction is fully within man's
regarding the degree to which they will have insurable damages to claim. capability. However, only those risks which are both unpredictable and
However, they realize if such an insured event occurred, they may not have largely beyond the client's control may be viably insured. Moreover, laws
the funds available to pay for the resulting damage. Thus, they may choose prohibiting discrimination amongst clientèle regarding preexisting
to purchase coverage as a means to protect them from this risk. conditions cause insurance agencies to inevitably pool higher-risk clients
In the case where a largely foreseeable health risk was covered, with lower-risks ones, thereby perverting the function of premiums, and
many of the predictably affected individuals would buy into the insurance causing the lower-risk to subsidize the higher-risk clients. Finally, as firms
just prior to the occurrence of the covered risk. Conversely, most of those are mandated to cover many otherwise uninsurable risks, the incentive for
who would predictably be unaffected by such an event would abstain from clients to shop around will be decreased, as the potential variance between
buying insurance. Any insurer of largely foreseeable events will attract those each insurance agency’s services will have been artificially curtailed (i.e. as
whom expect to profit and, at the same time, detract those whom expect to more risks are mandated to be covered, health insurance will have a lesser
lose from the arrangement. Insurance operations cannot perform under capacity for customization). Without allowing out-of-pocket costs to serve
such conditions. Their business is risk management; they act, not only as a as a deterrent to unnecessary medical care (e.g. trivial or at-home treatable
shield against damages, but to exchange unpredictable and dangerous risks ailments), the demand for medical services will be artificially inflated and,
for predictable, monetary payments. Without virtually unforeseeable risks, with it, a corresponding rise in insurance costs due to this distortion. Hoppe
insurance serves no viable purpose. comments on these unintended consequences of government interference
Finally, it seems plausible that to become eligible for high-quality in the health care industry:
health care coverage in a free market, one would likely be required to
submit to certain behavioral standards. In the case of automobile insurance, This is a lesson in the logic of
rules for entry may require that seat belts are worn and that drivers travel interventionism. The first interventionist
under a certain speed if they are to receive reimbursements for the act brought about a big mess — insurance
treatment of injuries caused by collision. Various rules of these premiums always go up because insurers
organizations may be amenable to clients as their observance will result in are no longer allowed to discriminate
smaller payments, due to lessened risks. Additionally, such insurance may correctly and are even forced to include
require its clients to receive a certain number of health exams a year, so as uninsurable risks. So now the problem
to detect and treat health risks early, when they are comparatively cheaper arises of more and more people dropping
to treat and serve to prevent future, more expensive procedures.92 In this out. For those who remain insured,
way, the insurance agency's profit interests are aligned with its client's premiums have to be raised to adjust for
interests to be secure from the overwhelming costs of future unforeseeable the fact that so many are dropping out.
medical procedures. In other words, preventing covered medical risks from
occurring at all will be the greatest contributing factor to the profitability of The next step, which we in the United
a given insurance agency's services. States are on the verge of taking, is to
In today’s State managed environment, minimum mandated make health insurance compulsory. No
coverage requires many clients to pay for unwanted or unneeded coverage, More Dropping Out! If this step is taken
thus driving up the cost of such insurance provision altogether. On top of — compulsory health insurance, with all
the other mandates remaining in place —
92
then of course premiums will skyrocket
The checkups or health exams will likely be paid for by the client out of pocket, but even more than they have in the past.93
will not be covered under his insurance. It may be the case that the agency would
offer the purchase of these services through its own channels, but again this
foreseeable service will be offered as a separate item distinct from insurance
93 Hoppe, ibid.
coverage precisely because it is foreseeable and therefore not viably insurable.
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 A SPONTANEOUS ORDER HEALTH CARE

services. This, in turn, will spark fiercer competition between medical

Does this mean consumers will generally pay for most of their healthcare providers on the grounds of quality and price. Because the consumer will be
directly in freed markets? Yes, though there would likely be alternative much more involved in the selection of his/her service provider, there will
arrangements available. For instance, individuals may choose to outsource be a comparatively higher demand for the development of new technology,
risk by means of group insurance. Group insurance has the unique which improves various medical procedures, making them safer, more
advantage of members being able to apply potent social pressures on effective, and more affordable over time. Furthermore, the absence of
anyone who abuses their coverage by either making false claims or going to costly regulations and taxes will translate into lower prices for the
the hospital for trivial ailments. Such practices were the norm in the early consumer, allowing them greater access to healthcare of their own
20th century with the advent of “lodge medicine.” This was a practice choosing. Finally, the absence of licensure requirements, patents, and other
typically provided by various fraternities comprised of impoverished and forms of intellectual property will result in a far greater supply of health
working class individuals. It proved to be advantageous financially and care providers and medicine. Consequently, the cost for these services and
qualitatively as David Beito describes: products will be far cheaper in comparison.
Of course, a skeptical person may be worried about the quality or
The leading beneficiary of lodge practice shade of free market health care providers as they are not forced to submit
was, of course, the patient of modest to State-set minimum standards. These standards, however, may easily be
means. He or she was able to obtain a supplanted by private accreditation firms or other third-party ratings
physician’s care for about $2.00 a year, agencies akin to Consumer Reports. In free markets, reputation is vital to
roughly equivalent to a day’s wage for a the success of every firm in every industry. Without State oversight or
laborer. For comparable amounts, some monopolistic boards of approval, transparency will increasingly be
lodges extended coverage to family demanded of medical providers. When reputation markets inform and
members. The remuneration the lodge determine massive consumer choice (imagine a vast and detailed Yelp),
doctor received was a far cry from the companies and associations that refuse to allow third-party evaluations will
higher fee schedules favored by the be pressured accordingly. What is more likely: any quality health care firms
profession. The local medical society in would be more than happy to submit themselves and their staff to third-
Meadville, Pennsylvania, was typical in party evaluations as a means of distinguishing themselves from the
setting the following minimum fees for its competition and to assure any prospective patrons that their services will be
members: $1.00 per physical examination, performed safely and efficiently. Firms which do not submit themselves to
surgical dressing, and daytime house call such independent, third-party evaluations would be seen as suspect when
and $2.00 per nighttime house call. Such compared to their more transparent counterparts.
charges, at least for ongoing service, were Some fear the propensity for such ratings agencies to be bribed.
beyond the reach of many lower-income While bribery is inherent in all human institutions, this sort of foul play will
Americans. Hence it was not coincidental, be greatly tempered by the presence of competitive upstarts in the ratings
an editorial in the Medical Council pointed industry. For a ratings agency to accept a bribe or engage in any foul play
out, that lodge practice thrived in would be to put its reputation and, therefore, its future profitability at great
communities populated by the working risk. Their competitors would be eager to investigate any claims of foul play
poor.94 and to make public any damning evidence that may be discovered.
Of course, different health care firms may hold different standards,
As communities evolve and grow, the need for group insurance will however, the various levels of standards of care will be reflected by higher
tend to fall as individuals over time become more wealthy and productive. or lower prices. For example, one may only be willing to pay twenty dollars
Many healthcare services will be paid for directly like most other services. for a physical and, as such, settle for patronizing a firm which provides a
When services are directly purchased, the consumer is more strongly moderate quality of service or whose staff has little experience. Quality
incentivized to shop around for the lowest-priced and/or highest-quality diversity is valuable, because most people who are unwilling or unable to
afford the highest-quality healthcare prefer to purchase the quality of
94 David T. Beito, From Mutual Aid to the Welfare State: Fraternal Societies and service they can afford. While there may be the “Motel 6” quality of
Social Services, 1890-1967 (Chapel Hill: University of North Carolina, 2000), 117.
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 A SPONTANEOUS ORDER HEALTH CARE

healthcare closer to the bottom rungs, there will also be the “Four Seasons” accuracy and safety features, and finally
quality healthcare closer towards the top. In markets freed from regulation moved to true custom wavefront analysis
and taxation, all levels of service increase in quality and decrease in price and correction.’95
over time. For instance, modern Toyota cars are a much higher quality
good than a Mercedes Benz from seventy-five years ago. It is understood The same methods of quality assurance in the medical care industry
that value is subjective, however, this manner of speaking is short hand for – competition, mercurial consumer choice, and influential third party
properties overwhelmingly desired by consumers such as greater safety, fuel evaluations – may also be applied to the pharmaceutical industry. Some
efficiency, speed, acceleration, reliability, automation, etc. theorists maintain that, without patents and the over-arching edifice of
Freed markets allow and incentivize consumers to discriminate intellectual property law, pharmaceutical companies will not have enough
between health care providers on the basis of many criteria ranging from incentive to perform expensive R&D, unless they can recoup it through
where the practitioners studied, what private certifications they have, their monopoly profits in the future.96 What must be considered is that one of
years of experience, the number of successful and failed procedures, asking the greatest expenses associated with ongoing research is the cost of
price, the friendliness of staff, the cleanliness of facilities, their bedside complying with mandated tests and trials conducted by the FDA, which can
manner, and much more. Furthermore, the reputable third-party agencies last decades! Not only are these mandatory testing requirements incredibly
may make up for the lack of expertise held by the average consumer expensive, thereby creating huge barriers to entry in the industry, but they
required to make a credible evaluation of a given firm or medical also keep otherwise life-saving drugs off the market for long periods of
practitioner. Just as many of us turn to Google or other sources of public time. In the interim, many people suffer and die while they wait for the
information to research products, so too would references given by FDA to grant approval for the drug. Patients in very dire circumstances
established and legitimate ratings agencies inform us on which medical may prefer to take the risk of consuming experimental or untested drugs as
provider to select. opposed to waiting for their deaths – which all too often occurs while
The sight-corrective procedure LASIK exemplifies the incentives waiting for FDA testing to complete. Of course, this is not an argument
to which medical providers adjust in the face of unadulterated demand against testing and research per se. Rather, it is meant to show the
from consumers. This practice is unique in that it is not covered by most destructive and wasteful effects of giving quality assurance to a
standard insurance, causing the majority of consumers to pay for it directly monopolistic agency.
out of pocket. This incentivizes them to discriminate more thoroughly Competing pharmaceutical firms will have to find the optimal
among the various levels of price and quality. Vijay Boyapati explains the balance between testing and release times for their drugs. If they release
results of this practice: them with too little testing, their customers may suffer unduly from harmful
side effects. However, should they take too long to test, they may be losing
With these incentives in place, the LASIK market share to competitors who are in a better position to release their
procedure has been reported to have fallen own, safe versions of the drugs sooner. One innovative option would be to
in cost by over 30 percent during the last release their drugs throughout all testing stages and label them according to
decade. Even more importantly, the quality their respective stages of testing, thus allowing the consumer to express
of the procedure has improved their own risk profiles individually. As there will be no one-size-fits-all
dramatically in that period as providers method for testing and release, such varying methods of production and
competed to deliver the most efficacious testing will be competing against one another creating a tendency towards
treatment. According to Erik Gross, an ever more safe and efficient practices. Not unlike medical care providers,
expert in the field of LASIK technology, pharmaceutical companies may seek third-party-safety certification as a
‘Early procedures were not LASIK at all, means of assuring their customers. Different third-party-safety certifiers will
but uncomfortable surface ablations with have different levels of reputability, which will affect the credibility of their
no astigmatism correction. Subsequent
generations of the procedure increased the 95 Vijay Boyapati, "What's Really Wrong with the Healthcare Industry." (editorial
treatable range, added correction for
published at Ludwig Von Mises Institute, Auburn, Alabama, March 26, 2010. Web.
astigmatism, correction for hyperopia, the <[Link]
lasikflap to increase stability and comfort, 96 For more arguments against the validity and efficacy of Intellectual Property laws,
see chapter 2.
144 145
 A SPONTANEOUS ORDER

respective certifications. This will, of course, just be one more factor for the
pharmaceutical entrepreneur to consider.
Finally, there is the ethical consideration of a free market-based
health care system. State interference in the health care industry taking the
form of regulations, minimum-mandated coverage, occupational licensing,
taxes, the enforcement of intellectual property laws, etc., are unique in that
Chapter Eight
they are unilaterally imposed and enforced via aggressive means. That is to
say, the ultimate consequence for not complying with them is imprisonment LAW AND ORDER
or potentially death, should one resist arrest. In sharp contrast, however,
the consumer and entrepreneur are only held to standards upon which both
parties agreed beforehand. Even the formation of tacit agreements – such NEARLY THE ENTIRE spectrum of political thought includes the
as eating at a restaurant and being asked to pay the bill – are legitimate in implicit assumption that the State is the institution best suited for the
free markets, because the restaurant, as a private institution, is legitimately production, interpretation, and enforcement of law and order. In fact, the
owned by the person setting the rules of service. In contrast, the State variance in most political discourse is confined to which laws the State
dictates policies over property on which it has no legitimate claim.97 Unlike ought to produce and how they should be interpreted and enforced. The
the State, private entities must adhere to general norms and practices in questions often left unasked, though begged by traditional political thought:
society, and persuade others to trade with them on good terms. Health care “Is the State the institution best suited for these tasks? If not, what is the
providers competing in free markets would have to rely upon voluntary superior alternative?” will be examined. This chapter will focus on a
consumer patronage to maintain economic viability, and any such providers systemic evaluation and critique of the State as a monopolistic producer of
who offer poor quality or undesirable services will continually stumble and law and less on the content of present legal systems. As such, this analysis
fall in light of more satisfying and more efficient products and techniques. will remain pertinent to any State-administered legal system despite its ever
This is the way in which markets are organically and perpetually regulated in changing law code and/or legal procedures.98
accordance with the consumer's ever changing desires.

The Problem of Social Order

Because the demand for various resources exceeds their

availability, norms must be established to promote their economic and just
use. As men are neither saints nor angels, disputes over resource ownership
abound. Thus, a legal system based on property norms serves as the
mechanism by which various disputes may be settled in a predictable and
just manner. Recall that violent interpersonal conflict is only possible
insofar as scarcity exists. Whether it is two men fighting over a beer, a
mugger and his victim, or a breach in contract, every violent dispute has
ultimately to do with the allocation and/or control over some scarce good
(whether of one’s own body or external good). The solution to the problem
of social order thus lays in the formulation of a rational set of property
rights such that, if followed, would negate the emergence of any and all
violent conflict.

97 Due to the fact that its agents neither acquired the land they are ruling via original 98 Before I begin I would like to attribute credit to the men whose works have largely
appropriation nor voluntary exchange. For more on this see Chapter 1: influenced the formulation of this chapter: Hans Hermann Hoppe, Stephan Kinsella,
Libertarianism. Robert P. Murphy, and David Friedman.
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 A SPONTANEOUS ORDER LAW AND ORDER

unavoidable conflicts can be avoided.

And only the principle of property
The Solution to Social Order acquisition through acts of original
appropriation, performed by specific
individuals at a specific time and location,
The solution to social order may be summed up in two words: makes it possible to avoid conflict from the
private property. Private property is a norm and, as such, works towards beginning of mankind onward, because only
facilitating the avoidance of interpersonal conflict. The way in which we the first appropriation of some previously
compare the efficacy of any given norms will be by examining whether or unappropriated good can be conflict-free
not, and to what extent, they generate or avoid conflict. Hoppe cogently — simply, because — per definitionem —
sums up why the norm of private property, compared to other property no one else had any previous dealings
norms, is best suited for conflict avoidance: with the good.99

Contrary to the frequently heard claim Before any talk of legal punishment, however, it should be made
that the institution of private property is clear that a victim is not obliged to punish or press charges against his
only a convention, it must be categorically aggressor. However, the following discussion will examine the extent to
stated: a convention serves a purpose, and it which a given victim may justifiably punish his aggressor. In a free market or
is something to which an alternative exists. voluntary society, it is likely that many victims would prefer a monetary or
The Latin alphabet, for instance, serves some other material restitution from their aggressors, over inflicting
the purpose of written communication physical harm on them. Such a society, being largely composed of voluntary
and there exists an alternative to it, the and peaceful relations, will probably be more opposed to violence as an end
Cyrillic alphabet. That is why it is referred in itself than our current environment (even when justified). Finally,
to as a convention. monetary or material restitution permits someone a wider range of options
to satisfy his desires, whereas using physical force against a perpetrator
What, however, is the purpose of action constitutes only one fleeting means of satisfaction.
norms? If no interpersonal conflict There is an important distinction between defense and punishment.
existed — that is: if, due to a prestabilized The former has to do with what is justified in the defense of one’s person
harmony of all interests, no situation ever or property as it is being violated, while the latter has to do with applying
arose in which two or more people want punishment after the fact when the perpetrator is no longer actively
to use one and the same good in violating property rights. One may justifiably use as much force as
incompatible ways — then no norms necessary to stop a person who is actively committing aggression, no matter
would be needed. It is the purpose of how trivial the violation may seem. For instance, if someone were to
norms to help avoid otherwise trespass on another's property and refuse to leave despite the owner’s
unavoidable conflict. A norm that requests, then the owner would be justified in using any level of force
generates conflict rather than helping to against this trespasser to defend his property. Though, technically, the
avoid it is contrary to the very purpose of norms. owner would be justified in killing this trespasser, this does not mean that
It is a dysfunctional norm or a perversion. doing so would be without consequence. The consequences may include an
increase in the owner's defense/insurance premiums, and he may face some
With regard to the purpose of conflict degree of social ostracism for the perceived excessive use of force (if
avoidance, however, the institution of someone commits a justified act, this merely entails that a violent response to
private property is definitely not just a said act would be unjustified or criminal). Anyone may ostracize anyone
convention, because no alternative to it else for whatever reason they deem appropriate, such as killing trespassers.
exists. Only private (exclusive) property
makes it possible that all otherwise
99 Hans-Hermann Hoppe, "State or Private Law Society?"
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 A SPONTANEOUS ORDER LAW AND ORDER

Thus, harsh behavior may be tempered by social/economic pressures. battery (physical beating). Suppose A
assaults B, such as by pointing a gun at
him or threatening to beat him. Clearly B
Punishment is entitled to do to A what A has done to
B---A is estopped from objecting to the
propriety of being threatened, i.e.
Defending oneself physically, however justifiable, is not sufficient assaulted. But what does this mean? To
for the attainment of justice. Prudence demands knowing what assault is to manifest an intent to cause
consequences may be justifiably imposed ex post on someone who commits harm, and to apprise B of this, so that he
an injustice and violates property rights. Violations of property rights are believes A (otherwise it is something like
unique from any other activity in that they may justifiably be met with a joke or acting, and B is not actually in
physical force or threats thereof. Stephan Kinsella provides what is known apprehension of being coerced). A was
as the “Estoppel Justification for Punishment” as a proof for why such able to put B in a state of fear by
violent or physical recourse may be warranted. To clarify, the term estoppel threatening B. But because of the nature
refers to a “common-law principle that prevents or precludes someone of assault, the only way B can really make
from making a claim in a lawsuit that is inconsistent with his prior A fear a retaliatory act by B is if B really
conduct…”100 To show the relevance this principle has on a justification for means it and is able to convince A of this
punishment, Kinsella states: fact. Thus B must actually be (capable of
being) willing to carry out the threatened
In short, we may punish one who has coercion of A, not just mouth the words,
initiated force, in a manner proportionate otherwise A will know B is merely
to his initiation of force and to the engaged in idle threats, merely bluffing.
consequences thereof, exactly because he Indeed, B can legitimately go forward
cannot coherently object to such with the threatened action if only to make
punishment. It makes no sense for him to A believe it, so that he is actually
object to punishment, because this assaulted. Although A need not actually
requires that he maintain that the use force to assault B, there is simply no
infliction of force is wrong, which is way for B to assault A in return without
contradictory because he intentionally actually having the right to use force
initiated force himself.101 against A. Because the whole situation is
caused by A’s action, he is estopped from
He then uses this Estoppel approach to demonstrate why defensive force objecting to the necessity of B using force
and punishment may be justifiably employed in response to threats made against him.102
against one's body or property:
One is only bound to respect the rights of another so long as this
This method of analyzing whether a person reciprocates. The right of self-defense allows those under attack to
proposed punishment is proper also respond with violence. As one is not required to suffer abuses to his body
makes it clear just why the threat of or property, but can justifiably defend himself from such abuses, it follows
violence or assault is properly treated as that he must regard an aggressor as having lost or relinquished some claim
an aggressive crime. Assault is defined as of peace and non-invasion. By his own conduct, such an attacker
putting someone in fear of receiving a demonstrates a desire for aggression over agreement, and, as such, tarnishes
his status as an innocent party. The concept of property rights itself entails
100 Stephan Kinsella, “Punishment and Proportionality: The Estoppel Approach” in
Journal of Libertarian Studies 1st ser. 12 (1996): 51-73.
101 Kinsella, “Punishment and Proportionality.” 102 Kinsella, ibid.
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that physical force may be used against those who violate one's just of psychological trauma A and C suffered from this encounter will also be
possessory claims. This is the very characteristic that separates rights from relevant when determining to what extent they may justly apply
non-rights. punishment). Of course, as it is impossible to determine exactly how much
If defensive violence is justified, perhaps violence for restitution or one values a thing, determining a proper punishment for B will be difficult.
for retributive reasons is as well? If so, what would its limits be? A hallmark If person A and person B cannot come to a mutually agreeable resolution
of justified punishment has long been meeting the criteria of on their own regarding compensation, they may solicit outside opinion for
proportionality. What is meant by proportionality? It would seem at first their case, in a process known as arbitration.
glance that what is truly proportional is purely subjective, and admittedly,
there is significant grey area in this realm. However, there are some
situations in which we may be able to objectively identify an excessive Decentralized Law Finding Systems vs. Centralized Legislation
amount of force used as punishment for a particular property rights
violation. For instance, if person B steals person A’s pack of bubble gum,
then executing person B as punishment for this crime would be clearly For this section, we will compare and contrast the general
disproportionate. Other than an intuitive notion that this would be characteristics of decentralized legal systems, such as common law and
excessive, we may also be able to rationally defend this position. At the very private law, with legislation. Legislation, or law by decree, is by its nature
least, person A would be justified in taking back the pack of gum from B, as less predictable than decentralized legal systems whose development is
well as some additional desired goods for the inconvenience and violation limited to extrapolations from previously established legal principles. As a
that person A was made to suffer. It is because person B initiated this force result of the comparatively less predictable nature of the legislative legal
upon person A that person A would be justified in taking more from system, fewer contracts are made owing to the uncertainty of their
person B than the identical pack of gum he stole, for this would only enforcement. Stephan Kinsella discusses the implications of this decrease in
restore person A to the position he was in before the incident, however, it predictability under a centralized legislative system:
would not compensate him for the subsequent inconvenience and violation
he had to endure in the interim. Additionally, we may determine that Another pernicious effect of the increased
executing person B for this petty theft would be excessive, because this uncertainty in legislation-based systems is
would involve the absolute destruction of person B’s rights (for life is a the increase of overall time preference.
necessary prerequisite of rights) as punishment for an act which violated Individuals invariably demonstrate a
only a portion of person A's rights. This distinction is more than arbitrary preference for earlier goods over later
sentimentality; it reveals the categorically scalar nature of rights. The goods, all things being equal. When time
unjustified ending of a life is a more egregious infraction of justice than is preferences are lower, individuals are
the pilfering of sugar-free Chiclets. B’s minor rights violation only warrants more willing to forgo immediate benefits
minor force to be used against him, contrary to his victim's preference to such as consumption, and invest their
impose capital punishment. time and capital in more indirect (i.e.,
However, the degree to which stealing a pack of gum harms person more roundabout, lengthier) production
A may differ from how much it harms person C, as they may each value the processes, which yield more or better
gum differently for whatever reason. As we cannot compare value goods for consumption or for further
interpersonally, it is impossible to assess the degree to which people gain production. Any artificial raising of the
and lose from actions.103 As a result of such incongruities in valuation, the general time-preference rate thus tends to
punishment person A may be justified in imposing on B may vary in impoverish society by pushing us away
regards to how person C may punish person B for the same act. (The level from production and long-term
investments. Yet increased uncertainty,
103
which is brought about by a legislation-
In every voluntary transaction, both parties gain ex ante. Neither would exchange based system, causes an increase in time-
anything if he believed he would be worse off after the exchange. They must each
prefer what the other offers to what they offer. Yet, which party gained more? The
preference rates because if the future is
buyer or the seller? As neither party’s cardinal valuations are observable, it becomes less certain, it is relatively less valuable
impossible to answer. Thus, no such comparisons are warranted.
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compared to the present.104 intimidation used for ensuring obedience to State rule. Kinsella summarizes
the advantages of a decentralized legal system:
With this relative increase in time preference and decrease in prosperity,
there comes an associated increase in crime. This general increase in time … [T]he position of common-law or
preference makes crime more appealing as it serves to satisfy more decentralized judges is fundamentally
immediate desires. Accordingly, the prospect of potential punishment will different from that of legislators in three
be less of a tempering factor for one with a higher-time preference – i.e., respects. First, judges can only make
one who places a high premium on current consumption versus future decisions when asked to do so by the
consumption. parties concerned. Second, the judge's
In addition to this, an arbitrary edict-based legislative system lacks decision is less far-reaching than
access to a pricing mechanism, which would otherwise serve as an legislation because it primarily affects the
invaluable indicator of the effectiveness or desirability of a law relative to parties to the dispute, and only
consumer or societal preference. With a pricing mechanism, one can judge occasionally affects third parties or others
such things by measuring their profitability. However, edict-based legislative with no connection to the parties
systems are generally promoted by States which are funded in a compulsory involved. Third, a judge's discretion is
manner (taxation). Thus, whether or not a certain law or set of laws is more limited by the necessity of referring to
or less desired by the public is comparatively more uncertain and difficult to similar precedents. Legal certainty is thus
determine. Without such institutionalized aggression, such things would be more attainable in a relatively
relatively easier to apprehend as one could check his balance sheet to verify decentralized law-finding system like the
customer satisfaction. Hence, the pricing mechanism enables such a common law, Roman law, or customary
decentralized free market legal system to continually refine and reinterpret law, than in centralized law-making
various legal codes more rationally relative to consumer preference. Not systems where legislation is the primary
only does the pricing mechanism serve as an indicator for what type of law is source of law.105
favored, but also how much it is favored over alternative attempts to produce
law. Moreover, in edict-based legislative environments there is bound to be
an over/under production of law in various fields as there is no rational The State as Provider of Law and Order
feedback that provides data comparable to a profit and loss system.
Legislative law systems also tend to be inferior as the legal system is
comprised of many disparate laws unrelated to any rationally justified Before discussing the State's role in the provision of law and social
principles, and as such, are less credible compared to decentralized legal order, a proper definition of the State is required:
systems which tend to extrapolate from organically established legal
principles. Furthermore, the unbridled scope of what legislative law systems The State, according to the standard
may cover tends to result in an over-expansion of legal codes. One definition, is not a regular, specialized
consequence of this ever-expanding legal code is that it creates more de jure firm. Rather, it is defined as an agency
criminals. By definition, as the law expands to constrict greater amounts of characterized by two unique, logically
human conduct, more people will be rendered and prosecuted as criminals. connected features. First, the state is an
As more and more people are said to be engaging in criminal behavior, agency that exercises a territorial
credibility will continue to be lost by the legal system, especially if such monopoly of ultimate decision making.
outlawed behavior does not constitute aggression against other people or That is, the state is the ultimate arbiter in
their property. Worse yet, such a system makes virtually everyone every case of conflict, including conflicts
vulnerable to prosecution by the State whenever its agents deem fit. Of involving itself. It allows no appeal above
course, this threat of impending punishment serves as an effective tool of and beyond itself. Second, the state is an

104 Stephan Kinsella, "Legislation and the Discovery of Law in a Free Society" in
105 Kinsella, “Legislation and the Discovery of Law in a Free Society.”
Journal of Libertarian Studies 11.2 (1995): 132-81.
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agency that exercises a territorial property, and the pursuit of happiness

monopoly of taxation. That is, it is an from domestic violence (crime) as well as
agency that unilaterally fixes the price that external (foreign) aggression (war).
private citizens must pay for the state's
service as ultimate judge and enforcer of Both propositions are apparently
law and order.106 incompatible with each other. This has
rarely caused concern among
Put more simply, the State is that institution which enjoys a monopoly over philosophers and economists, however,
the production, interpretation, and enforcement of law. In addition to this, and in so far as it has, the typical reaction
the State also has the sole right to force its citizens to pay for its services, has been one of taking exception to the
the price and scope of which are also dictated by the State and are subject first proposition rather than the second.
to change at its discretion. The resulting conflict of interest and moral Yet there exist fundamental theoretical
hazard from a single institution being equipped with these exclusive legal reasons (and mountains of empirical
privileges should be readily apparent. Hoppe brilliantly summarizes the evidence) that it is indeed the second
logical incoherence of holding both the belief that monopolies are bad for proposition that is in error.107
the consumer, and that law and order must be exclusively provided by the
State: Hoppe demonstrates that the State is not immune from the principles of
economics. The exercise of a State monopoly over the provision of any
First of all, among economists and service will lead to the same inefficiencies and destruction of wealth as any
philosophers two near-universally other monopolistic operation. The second major disadvantage of State
accepted propositions exist: provided law and order is the lack of contract:

1. Every "monopoly" is "bad" from the If one wanted to summarize in one word
viewpoint of consumers. Monopoly is the decisive difference and advantage of a
here understood in its classic meaning as competitive security industry as compared
an exclusive privilege granted to a single to the current statist practice, it would be
producer of a commodity or service, or as this: contract. The state, as ultimate
the absence of "free entry" into a decision maker and judge, operates in a
particular line of production. Only one contract-less legal vacuum. There exists
agency, A, may produce a given good or no contract between the state and its
service, X. Such a monopoly is "bad" for citizens. It is not contractually fixed, what
consumers, because, shielded from is actually owned by whom, and what,
potential new entrants into a given area of accordingly, is to be protected. It is not
production, the price of the product will fixed, what service the state is to provide,
be higher and its quality lower than what is to happen if the state fails in its
otherwise, under free competition. duty, nor what the price is that the
2. The production of law and order, i.e., "customer" of such "service" must pay.
of security, is the primary function of the Rather, the state unilaterally fixes the rules
state (as just defined). Security is here of the game and can change them, per
understood in the wide sense adopted in legislation, during the game. Obviously,
the American Declaration of such behavior is inconceivable for freely
Independence: as the protection of life, financed security providers. Just imagine a

106 Hoppe, “State or Private Law Society.” 107 Hoppe, ibid.

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security provider, whether police, insurer,

or arbitrator, whose offer consisted of Speculations on Free Market Law and Order
something like this:
‘I will not contractually guarantee you
anything. I will not tell you what specific Specifically regarding the problem at
things I will regard as your to-be- hand: in a private-law society the
protected property, nor will I tell you production of security — of law and
what I oblige myself to do if, according to order — will be undertaken by freely
your opinion, I do not fulfill my service to financed individuals and agencies
you — but in any case, I reserve the right competing for a voluntarily paying (or
to unilaterally determine the price that not-paying) clientèle, just as the
you must pay me for such undefined production of all other goods and
service.’108 services.110

Finally, under a Statist legal system, citizens are much less In a free market society, the functions of security, auditing, media,
incentivized to take an active role in shaping the rules which govern them. consumer evaluations, insurance, investigation, arbitration, and law
The reason for this is simple: one’s vote has relatively little impact on enforcement will be provided in tandem in order to maintain the protection
determining the laws that will govern him, and the cost of maintaining an of the consumers that finance them. Highly contingent and specific details
informed vote is high. To vote according to one’s interests, one must cannot be determined beforehand, however. The particular configuration of
determine what policies are actually in line with his interests and who agencies and their functions, to what degree competition will exist, and how
represents these policies. many agencies there may be in a given geographic area cannot be known in
The relatively high cost of conducting the research and advance. Though the possibilities are endless, a few remarks may be made
introspection required to achieve this tends to be greater than the impact a regarding how economic incentives would structure organizations within
person’s single vote will have in an election. Thus, he chooses to remain in this industry. Given the obvious concerns of bribery, moral hazard, and
a state of rational ignorance, as the costs of alleviating his ignorance are not various conflicts of interest, it behooves the reader to scrutinize every
worth the benefits of him doing so.109 Furthermore, any representative may proposal offered.
change his stance at any time with little to no recourse, despite his campaign Emerging from the accumulation of billions of minds' worth of
promises. This representative is not bound by any contract to exercise or creativity is a spontaneously-ordered legal system that adjusts to fulfill the
manifest his promised course of action. To further compound the issue one ever changing desires of families, communities, businesses, and individuals:
may only like polices 1, 3, 5, and 7 of representative A and policies 2, 4, 6, its customers. As organic legal systems emerge to replace State-sanctioned
and 8 of representative B. In such a situation, one is put in a position where legislatures and courts, there will be a strong diversity of practices in
he has to accept an unfamiliar and diverse basket of policies depending on different regions. Over time, improvements in technology and organization
the unique opinions of the representative he chooses. This is converse to will further develop the success of private-law structures empowering
the situation in which one is permitted to choose between a variety of law everyone to command and act in accordance with justice. The following
providers and insurers under free competition. In the latter scenario, his scenario will be used to illustrate some of the general characteristics of such
choices will have a far greater impact on the “laws” that rule him than they a system.
would under a State system. Bob desires two things: security and, in the cases where his liberty
is violated, restitution. He wants to employ human and material goods to
108 Hoppe, ibid. defend himself from attempts on his liberty/property, and he also wants a
109 Bryan D. Caplan, "Rational Irrationality" in The Myth of the Rational Voter: Why mechanism that restores him to his natural state before the violation. To
Democracies Choose Bad Policies (Princeton: Princeton University Press, 2007), accommodate this demand, competing defense insurance agencies (DIAs)
132. Caplan writes: “Since delusional political beliefs are free, the voter consumes offer Bob their services of protection and indemnification in exchange for
until he reaches his “satiation point,” believing whatever makes him feel best. When
a person puts on his voting hat, he does not have to give up practical efficacy in
exchange for self-image, because he has no practical efficacy to give up in the first
110 Hoppe, ibid.
place.”
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monthly premiums commensurate with his security risk. Bob has several the event the trusted arbitrator concludes that Terry is not guilty, Shield will
firms from which to choose and makes his decision according to which compensate him for his troubles associated with these false allegations. It is
DIA has a reputation and plan that suits his individual needs. Bob chooses this prospect of reputational damage and financial loss which incentivizes
Shield, a DIA renowned for its low prices, harm prevention, and excellent the DIAs not to accuse people of crimes without substantial corroborating
history of providing solid restitution for its clients. He chooses the basic evidence.
plan which covers acts of mugging, assault, and murder in most areas of his In the case that the arbiter rules that Terry is guilty, Shield will
hometown. Shield offers Bob the option of carrying a tracking and panic proceed on insisting that Terry pay up. If Terry is able, but refuses, then
device with him at all times, in order to more effectively offer its assistance Shield – with its large established name and influence – may contract with
during emergencies. In exchange for Bob’s willingness to carry such a his employer to garnish his future wages with interest until Terry’s debt is
device, Shield agrees to lower his monthly premium for its services. satisfied. If Terry is able to pay, but earns no outside income, then Shield
One day, while riding his bike to work, Bob is confronted by a man may confiscate his property and auction it off as a means to satisfy his debts
demanding his bicycle at knife-point, who then rides away with it. Using the and the costs of the auction. If Terry is unable to pay, then Shield may have
device, Bob immediately alerts Shield, but, unfortunately, by the time they him work at a securitized camp until his restitution is paid off. To avoid
arrive, the mugger is long out of sight. Per Bob's contract, Shield covers the reputational damages and accusations of inhumane conduct, Shield will
cost of Bob’s bike as well as additional compensation for his troubles and have the incentive to ensure that such camps meet certain safety standards.
trauma resulting from the incident. As a means to mitigate harm to its If Shield neglects to ensure that Terry is sent to a safe camp, then its
reputation and to recover the funds that it had given out to Bob, Shield competitors, humanitarian organizations, or other third party evaluators
commences an investigation. After some detective work, Shield gathers would be happy to expose Shield as a cruel or negligent DIA. This would
enough evidence to confidently name Terry as the mugger. Shield agents then result in a loss of legitimacy and therefore business for Shield. Thus, it
then approach Terry instructing him to pay the amount they had given to is the prospect of these consequences that will compel Shield to ensure
Bob, along with the expenses of the investigation. Terry refuses, claiming Terry is indeed sent to a humane and safe work camp. Of course, at any
he is innocent. Because Shield competes on reputation as well as price, it time throughout this process, Terry may have a third party pay off his debts
hears Terry’s case and cross references his testimony with the evidence it to Shield in whole and relieve him of his work camp duty.
gathered earlier. However, despite Terry’s testimony, Shield still believes In addition, it needn't be Shield that runs the work camp; they may
Terry to be guilty. delegate it to subcontractors. The work camp selected by Shield will also be
In the case that Terry has no DIA coverage, Shield may contract tempered by the reputational/economic considerations listed above. These
with a third party arbiter to review the evidence and testimony of each party same considerations would equally apply to the firms which manage the
and come to its own verdict. Contrary to a legislative system, there is no work camps, deterring them from employing draconian measures or
single law pertaining to Terry's conduct. Anyone is free to enter the judiciary refusing to maintain a safe environment. To demonstrate the safety of the
business and offer verdicts. The type of standards such arbitrators and environment and the humane treatment of its inhabitants, the work camps
judges use are tempered by consumer preference. If they are seen as out of would likely welcome regular and random third party audits of their
touch with justice, then this will have a negative impact on this particular facilities and practices. If the work camp passes the inspection, it may then
arbitration agency’s desirability and reputation. be certified by this third party auditor as a humane and safe environment.
Terry would be encouraged to participate in such arbitration, to This certification is only valuable insofar as the agency granting it
make his voice publicly and explicitly heard, so as to make the ruling more withstands bribery or other forms of foul play, thus any attempts for the
legitimate. If Terry refuses to participate, Shield may offer alternative work camp agents to pay off the auditors will likely be futile. In fact, any act
arbitration agencies to handle the case in the hopes that Terry would intended to bribe the auditors would probably earn the camp an automatic
reconsider. In the case that Terry adamantly refuses to go to any arbitration, failing grade. Finally, regardless of whether or not Terry pays off his debt,
Shield may proceed with arbitration without him and he would be tried in Shield will pass his information along to a criminal records bureau which
absentia. Shield is willing to go through all this trouble to encourage Terry’s will document his criminal actions on an archived record.
participation, because it would bolster the legitimacy of any subsequent This sort of practice occurs in Las Vegas between different casinos.
ruling on the case. Shield will also be incentivized to offer Terry arbitration They may black list a person caught cheating and spread word to other
through agencies which have a reputation for impartiality, fairness, and casinos so as to create a reciprocal relationship wherein the other casinos
expertise in the matter concerned for similar legitimacy considerations. In will act in kind to continue this profitable and cooperative relationship. So,

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too, and for the same reasons, the various DIAs will want to share with Should Terry refuse and subsequently lose coverage, then his
each other information regarding risky individuals, so that they may be able protection would be limited to what he can physically provide himself and
to more effectively gauge security risks and require commensurate payment what his resources can directly purchase. If, however, Hammer Defense
for their insurance. The criminal records bureaus will distinguish themselves comes to the conclusion that Terry is not guilty, – or that there is
from one another on their ability to verify the validity of criminal verdicts insufficient evidence to prove his guilt – it will likely share its findings with
against individuals in an impartial manner. The less scrutiny such a records Shield. After reviewing contrary evidence, if Shield remains unconvinced,
bureau would use against such verdicts, the less credible its records would what is needed is arbitration: both parties will each agree upon a third party
become. Thus, such bureaus will likely review the investigative and judicial and be bound to its decision. As inter-agency disputes may occur
proceedings used on a particular person against their own standards prior to frequently, there will tend to emerge a habit of multiple DIAs agreeing in
making the requested changes to this person’s record.111 An additional advance, by contract, who will mediate or arbitrate which disputes.
benefit of this process is that it grants credibility to both the DIAs and the Suppose, however, that the arbitration agency used decides Terry is guilty,
arbitration agencies as passing such an audit further legitimizes these and, despite industry arrangements, years of goodwill, and most
institutions and their practices. The criminal records also serve the purposes importantly, contractual obligations, Hammer Defense reneges on its
of enabling the DIAs to more accurately determine premiums for new agreement and refuses to abide by the arbitration ruling. What then? Will
clients and whether they should even provide a prospective client with violence be used? No, most likely not. Instead, Shield along with the
coverage at all. arbitration agency will threaten to publicize Hammer Defense's welching
People who are prone to criminal activity are more likely to be nature if it continues to be non-compliant. If Hammer Defense refuses to
engaged in violent disputes with others, costing the DIA more resources to abide by the ruling even still, Shield and the arbitration agency could
insure than peaceful people. Moreover, many residential or commercial execute their threat, causing Hammer Defense to lose credibility and, by
areas may choose to not allow a person with a violent criminal past on their extension, business and power.
premises at all. If applied generally or universally, it would leave this person The simpler situation to observe would be if Bob and Terry were
limited to roaming more dangerous or undeveloped areas, causing his DIA each clients of the same DIA. Prior to gaining coverage, each client would
coverage to become ever more expensive. likely agree to abide by the ruling(s) of a given arbitration agency(s) to be
Of course, such areas would not want to be overly discriminatory used in the case a criminal dispute arises between himself and another
(namely commercial areas), for these people are, after all, potential person covered by the same agency. Alternatively, for the sake of saving
customers, suppliers, or supporters. For economic reasons perhaps, they costs for itself and the consumer, the DIA may offer its clients the option
may invite, hire, or trade with former criminals to the extent they of allowing it to make the ruling itself as opposed to outsourcing to a third
demonstrate value and/or have participated in some form of reputable party arbitrator. In their coverage agreements, the clients may also sign off
rehabilitation. Participating in such voluntary rehabilitation may also on which arbitration agencies will be used should one enter into a dispute
prompt other DIAs to offer recovering criminals lower premiums as well. with a client of a separate DIA. In a society populated by competing
The preceding scenario is an example of social and economic pressure, each insurance and arbitration agencies, the “laws” to which any given person is
of which serves as powerful deterrents to criminal and unsavory behavior. subject will essentially be the standards used by the reviewing arbitration
Back to our scenario with Bob and Terry: assume that Terry does agency when rendering a verdict. For this reason, it is in the DIA’s best
have DIA coverage. In this case, Terry may notify his DIA (Hammer interest to choose agencies whose standards are desirable to its clients.
Defense) that Shield is demanding restitution for a falsely-accused crime: Some people, for instance, may never want to be subject to capital
mugging Bob. At this point, Hammer Defense may confer with Shield and punishment. Of course, such individuals may not be able to live under the
its findings as well as conduct an investigation of its own into the matter. If, exact set of laws he would like because DIAs would still have to come to
upon reviewing the evidence of its own investigation and cross referencing agreeable terms with each other in order to remain viable. However, the
it with evidence gathered by Shield, it determines that Terry is indeed guilty, customer would undoubtedly have a much larger influence on choosing the
then Hammer Defense will compel its client to pay or drop his coverage. governing principles he prefers than under a legislative system.
A client of DIA “X” may be under a different set of laws than a
111 client of DIA “Y” due to the different preferences for law desired by
Though this may entail differences in the contents of records from one agency to
another, the market process will tend toward deeming one or a select few bureaus as
customers of DIA “X” and DIA “Y” respectively. It is the preferences
the industry standard(s) much like the “Non-GMO Project verified” seal serves as which guide the various DIAs to contract with those arbitration agencies
today’s standard for identifying GMO free food.
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that, in turn, produce the law that is most aligned with their customers’ not only be permitted, but encouraged. After all, the better one may defend
preferences. Perhaps customers of DIA X would be willing to pay more for himself, the less risk he bears. As such, clients who can demonstrate that
their coverage if DIA X can ensure them they will never face the death they have the means and ability to defend themselves – perhaps through
penalty by only contracting with those arbitration agencies that refuse to some form of certification process – will likely be able to secure lower
impose it. Supposing this “no-death” stipulation is DIA X’s largest concern, premiums from their DIAs. Furthermore, in a comparatively better armed
it will be willing to expend many resources to assure its customers they will society, there would be far less crime as the cost of engaging in criminal
never face the death penalty when negotiating with other DIAs regarding behavior would be relatively higher than in our current environment where
the arbitration agencies to be used in resolving disputes between their weapon ownership is significantly abridged. Competition is another obvious
respective clients. An alternative to expending resources to secure favorable benefit of such a system:
arbitration agencies may be for DIA X to compromise on other legal areas
that are less significant to its interests, but are more significant to DIA Y or First, competition among police, insurers,
DIA Z. The reason different people may live under different laws is that and arbitrators for paying clients would
their respective DIAs will be bargaining with one another on behalf of bring about a tendency toward a
different sets of consumer preferences. The arbitration agency used to settle continuous fall in the price of protection
the disputes between customers of DIA Y and DIA Z may differ from the (per insured value), thus rendering
arbitration agency used to settle such disputes between customers of DIA Y protection increasingly more affordable,
and DIA X. Once more, this would be due to the fact that differences in whereas under monopolistic (statist)
their respective customer preferences for law will have caused them to conditions the price of protection will
ordain different arbitration agencies to settle disputes between their own steadily rise and become increasingly
clientèle and others. unaffordable.112
Additionally, the DIAs will want to adopt policies which are most
economically able to prevent conflict to ensure the greatest amount of A multiplicity of private defense firms is beneficial as they will compete not
profit. Thus, promoting the principles of peace and respect for private only on price, but also on the basis of the quality of their services. What
property will be very important. A society flourishing in peace and constitutes quality may be comprised of some of the following factors:
productivity will encourage two profitable effects: 1) Higher productivity
implies there is simply more value for insurance and defense agencies to • Emergency response times
defend, growing their coverage, and; 2) Peace and prosperity implies fewer • Rigor of third party auditing
people are resorting to criminal and aggressive behavior. As such, any • Diplomatic acumen
arbitration agency which frequently rules counter to the norm of private
• Crime prevention
property would likely run out of business. There would be no legitimate
defense agency willing to abide by terms contrary to respect for private • Investigative and executive prowess
property. Those norms which contradict that of private property only serve • Contractual relations with reputable and desirable judicial
to generate conflict. Thus, the market’s pursuit for an efficient and equitable legal (arbitration) agencies, etc.
system will likely produce one which is consistent with private property and the non-
aggression principle. It is no coincidence, then, that the most efficient legal Through competition, an efficient division of labor would abound and tend
system will be the one that is most just. to weed out inefficient security firms and arbitration agencies, freeing up
land, labor, and capital to be used by more efficient agencies of this industry
or any other. It is this process which allows these services to evolve
Advantages of the Private Provision of Law and Order according to the ever changing desires of the consumer and development of
technology. This economization produces a sort of spontaneous order that
no central planner could ever hope to emulate.
In contemporary society, people are instructed and trained not to Because these services will be privately provided on the
attempt to defend themselves, but to rely on State-provided monopoly marketplace, a pricing mechanism will manifest that enables entrepreneurs
defense agencies. Conversely, in freed markets, self-defense practices will
112 Hoppe, ibid.
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to rationally calculate ever-more optimal allocations of resources. Losses would likely be discouraged as it tends to be messy, costly, and more out of
imply that resources are being combined in value-destroying ways, and vice line with justice than other more civilized means:
versa with profits. The advantage of having access to such a pricing
mechanism is that it yields a much more productive output of service and … [E]very insurer must restrict the
quality: actions of his clients so as to exclude all
aggression and provocation on their part.
… [I]n a system of freely competing That is, any insurance against social
protection agencies, all arbitrariness of disasters such as crime must be
allocation (all over- and underproduction) contingent on the insured submitting
would disappear. Protection would be themselves to specified norms of
accorded the relative importance that is civilized, nonaggressive conduct. Further,
has in the eyes of voluntarily paying due to the same reasons and financial
consumers, and no person, group, or concerns, insurers will tend to require that
region would receive protection at the their clients abstain from all forms of
expense of any other one. Each and every vigilante justice (except perhaps under
one would receive protection in quite extraordinary circumstances), for
accordance with his own payments.113 vigilante justice, even if justified,
invariably causes uncertainty and
The incentive structure of DIAs is also quite different from State provokes possible third-party
agents, in that the members of a reputable insurance firm have a vested intervention. By obliging their clients
financial interest in preventing crime, apprehending criminals, and instead to submit to regular publicized
recovering stolen loot. If a DIA is unable to prevent a crime, or to procedures whenever they think they have
apprehend the criminal responsible for a given crime, then it will have to been victimized, these disturbances and
bear the total cost of restitution to its affected client, resulting in financial associated costs can be largely avoided.114
loss and reputational damage.
Such a private law system would have a larger peace promoting Additionally, in some cases, DIAs may only be able to cover aggression in
effect than its State-administered counterpart. This is largely due to the fact certain pre-approved geographical areas. For similar reasons, the premiums
that private institutions are not able to externalize the high costs of offered may also be largely affected by the geographical area in which the
aggression onto its customers in the same way the State can. Private client may wish to be covered. If this client is violated outside of these
businesses are typical economic actors; they and consumers alike are covered areas, then the insurance company would not be obligated to
governed by the law of demand. Higher prices for security services – to reimburse him for his injuries. Thus many commercial or residential areas
finance increased aggression – translates into fewer sales as consumers will attempt to meet DIA approved standards of safety and civility, so as to
begin to purchase said services elsewhere. In contrast, no matter how high encourage tourism and the immigration of high-net worth individuals.
the cost of law and security becomes under State rule, its corner on the Should one lose his DIA coverage due to his engagement in
marketplace is largely unaffected since it has the legal authority to force its aggressive behavior, then his social status will be greatly damaged. Criminal
citizens to pay, while at the same time artificially suppressing competition record bureaus may track the conduct of such individuals and provide their
with threats of brutality and imprisonment. Conversely, a private institution information upon request to interested parties such as credit agencies or
would have to worry about the loss of business resulting from the increased prospective employers. These interested individuals may also include
expenditures and reputational damage associated with its aggressive property owners in residential or commercial areas, to whom such
conduct, along with legal liability. information will likely have a substantial effect on the decision of whether
An alternative concern for DIAs would be the prospect of their or not to let a person enter their property. Of course, these employers or
clients engaging in provocative behavior or vigilantism. Such behavior property owners may overlook past criminal behavior if the individual in

113 Hoppe, ibid. 114 Hoppe, ibid.

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question can demonstrate the completion of some form of rehabilitation as while states as tax-funded agencies can —
previously mentioned. and do — engage in the large-scale
A common concern with a private law system lies with the idea that prosecution of victimless crimes such as
the rich will end up purchasing unjust legal favor by bribing arbitration "illegal-drug" use, prostitution, or
agencies or DIAs. This practice is certainly common today. It is clear that gambling, these "crimes" would tend to
wealthier individuals convicted of the same crime tend to be dealt less be of little or no concern within a system
severe punishments than their less wealthy counterparts in contemporary of freely funded protection agencies.
State-run legal systems. Worse yet, the State holds a monopoly on the "Protection" against such "crimes" would
provision of law and order. It has no competitors and does not fear require higher insurance premiums, but
extinction. The otherwise tempering prospects of losing market share to since these "crimes" — unlike genuine
one’s competitors is absent. Unsurprisingly, the State also claims the crimes against persons and property —
authority to arbitrate any and all conflicts involving its own agents or do not create victims, very few people
agencies which yields a clear conflict of interest that would never pass in a would be willing to spend money on such
private law system. It is a lawless institution as it ultimately never submits "protection."115
itself to the decision of a neutral, third party.
However, it is still worth addressing the possibility of foul play The legalization of such activities would also render a crippling
occurring in a private law system. It is the preservation of reputation and blow to violent organized crime syndicates as they tend to be the greatest
legal status that deters DIA agents from acquiescing to bribes or any other source of revenue for these institutions. This loss in revenue will result in a
form of foul play in the execution of their services. For as soon as it is corresponding loss of power and influence previously enjoyed by these
discovered that a DIA’s agents committed a serious injustice, the DIA as a criminal organizations.
whole will be vulnerable to losing significant credibility and business. In the In a freed market, no single protection agency holds all the cards.
event that said agents commit an injustice, the slighted individual could Power is decentralized amongst those who provide protection. It is unlikely
publicize the transgression, perhaps to various watch dog agencies or even that any single agency will succeed in submitting his competitors and
criminal records bureaus that perform regular audits on such firms. Next, if customers to its arbitrary will. Customers, for instance, can demand ample
foul play has been indicated by the investigation of these disinterested third assurances and checks on their power. This could include having the DIA
parties, then the competitors of this dubious firm would see to it that such subject itself to third party auditing and the like. Robert Murphy adds some
behavior was widely marketed along with whatever publications the watch relevant commentary:
dog agencies produce. If a given DIA refuses a request to undergo an audit
by a credible watchdog agency or criminal records bureau, then such … [T]he private companies providing
evasive behavior would also likely be publicized in a similar manner legal services would have far less power
resulting in the denigration of this dubious firm’s reputation and business. under free market anarchy than the
A firm’s credibility in the private law industry is paramount to its viability in government currently possesses. Most
a truly free market. The same such considerations will likewise deter foul obvious, there would be no power to tax
play on the part of arbitration agencies. or to monopolize "service." If a particular
With alternative, competitive markets in defense and judicial insurance company were reluctant to pay
services, prohibitions on all types of “victimless crimes” will disappear. legitimate claims, this would become
Today, many billions of dollars are spent on the drug war, which is quickly known, and people would take
responsible for untold levels of violence. However, the ownership, this into account when dealing with
production, distribution, or consumption of drugs does not entail a clients of this disreputable firm. The fear
violation against property or persons – likewise for gambling and that (under free market anarchy) private
prostitution. As such, very few people would likely be interested in paying individuals would replace politicians
for protection against such activities: overlooks the true causes of state

Lastly, it is worthwhile pointing out that

115 Hoppe, ibid.
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mischief. Unlike feudal monarchs, insurance agencies and would be handled

democratic rulers don't actually own the either by an individual insurer's
resources (including human) that they "domestic" law or by the "international"
control. Furthermore, the duration of or "universal" law provisions and
their rule (and hence control of these procedures agreed upon by everyone in
resources) is very uncertain. For these advance. Hence, instead of permanent
reasons, politicians and other government conflict, injustice, and legal insecurity —
employees do not exercise much care in as under the present statist conditions —
maintaining the (market) value of the in a private-law society, peace, justice, and
property in their jurisdiction. legal security would hold sway.117
Shareholders of a private company,
however, have every interest in choosing Crime, unfortunately, will always exist, and it is not the purpose of
personnel and policies to maximize the this argument to prove that implementing a private law system will convert
profitability of the firm. All the horrors of all men to saints and angels. Rather, it is intended to demonstrate that such
the state — onerous taxation, police a system is preferable to State-provided “justice.” This argument for a
brutality, total war — are not only private law system only takes for granted that mankind is inherently self-
monstrous, but they're also grossly interested. That people prefer to get the most amount of gain for the least
inefficient. It would never be profitable amount of effort, and it takes these seemingly negative characteristics and
for anarchist insurance and legal firms to aligns them with the welfare of society. This, of course, does not mean one
mimic the policies set by governments.116 must not have charitable inclinations for free market anarchy to function
properly or even that the profits sought must be of a monetary nature. It
As third-party protection and arbitration agencies gain popularity simply means this: given that human beings purposively use means to
relative to State agencies, there will be noticeable civilizing effects. As the achieve ends, a free and open market in law will be the most conducive in
price of protection collapses, criminals will find honorable work as more satisfying the greatest number of desires to the greatest degree. The beauty
rewarding to their ends than committing aggression. Time preferences will of the free market is that this practical end is achieved precisely by adhering to
lower as individuals hire competent security and resolution agencies and the libertarian principles of justice.
abandon brutal and petty municipal police departments. Hoppe elaborates:

As a result of the constant cooperation of

various insurers and arbitrators, then, a
tendency toward the unification of
property and contract law and the
harmonization of the rules of procedure,
evidence, and conflict resolution would
be set in motion. Thus, in buying
protection insurance, every insurer and
insured becomes a participant in an
integrated system of conflict avoidance
and peacekeeping. Every single conflict
and damage claim, regardless of where
and by or against whom, would fall under
the jurisdiction of one or more specific

116 Robert P. Murphy, Chaos Theory: Two Essays on Market Anarchy (New York: RJ
117 Hoppe, ibid.
Communications LLC, 2002).
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 DEFENSE AND SECURITY

should always prevail over the interests of

the producer.
Now in pursuing these principles, one
arrives at this rigorous conclusion: That
Chapter Nine the production of security should, in the
interests of the consumers of this
intangible commodity, remain subject to
DEFENSE AND SECURITY the law of free competition.

Whence it follows: That no government

FOR CENTURIES, LAW and political economy held sacred the notion should have the right to prevent another
that a sovereign must hold power over the masses. This notion, to the government from going into competition
extent it is philosophical, has Hobbesian roots. Hobbes argues that a state with it, or to require consumers of
of nature is a dangerous and wild place, where life is “nasty, brutish, and security to come exclusively to it for this
short.”118 The argument continues: Therefore, to install peace among the commodity.119
disparate peoples, they should submit their will and freedoms to a single
sovereign, who, as a neutral, third party, will impartially administer justice It is important not to confuse the term “government” with the
and thwart crime for the commonwealth. The implication is that the people, State. The State is a type of government; however, it is a coercive or
without such a centralized institution, would spend too little on their own aggressive variant. Free markets also wield governing forces, however, such
defense, making for a situation of near perpetual conflict. For this reason, forces are not artificially imposed by decree. They include the laws of
many contend that security must be provided unilaterally by the State, and supply and demand, consumer sovereignty, reputation, competition, the
that its cost should be imposed on everyone irrespective of any individual’s prospect of profits/losses, etc. As Molinari insinuates, security, just as any
willingness or unwillingness to pay. This notion must be challenged. other service, is most efficiently produced in freed markets.
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 The State Problem
competitive governments:

If there is one well-established truth in The Immediate Contradiction

political economy, it is this: That in all
cases, for all commodities that serve to
provide for the tangible or intangible The State claims its role is to defend persons and their property.
needs of the consumer, it is in the Prior to the provision of such service, however, it must first steal from
consumer’s best interest that labor and people the very property it claims to protect via taxation. The State
trade remain free, because the freedom of essentially says “We are going to take your property under the threat of
labor and of trade have as their necessary violent reprimand, so that we may protect your property and your person.”
and permanent result the maximum Hoppe summarizes this ridiculous and self-refuting notion by referring to
reduction of price. States as expropriating property protectors. The State must first violate
property rights before being able to defend them.
And this: That the interests of the
consumer of any commodity whatsoever

118 Thomas Hobbes, Leviathan: Or the Matter, Forme, and Power of a Common-Wealth
119 Gustave de Molinari, "Competition in Security" in The Production of Security (New
Ecclesiasticall and Civill. edit. Ian Shapiro (New Haven: Yale University Press,
2010). York: Center for Libertarian Studies, 1977).
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 A SPONTANEOUS ORDER DEFENSE AND SECURITY

voluntary contributions. Consequently, this perverts the feedback

The “Necessary Evil” Argument 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
A monopoly on the legal right to initiate force does not decrease efficient. However, the State is not lacking of incentives altogether. The
the danger peaceful people face from aggressive people; in fact, an prospect for re-election and, thus, campaign funding from various special
institution such as this serves to attract those who desire power and interest groups and lobbyists will have a profound influence on the policy
coercive control over others to its own positions of authority. This has only decisions of any given representative. Perhaps more funding is provided to
exacerbated the very premise for which State advocacy is based: that we county A as a political favor while county B enjoys little to no public works
require a State to protect the innocent from the criminal. Even the phrase investments at all. Likewise, it is not difficult to imagine the prospects of
“necessary evil” itself is self-refuting. Evil, by its very nature, is destructive military conflict increasing due to political favor garnered from elements in
and thus completely unnecessary to achieving the ends of life, liberty, and the military industrial complex.
prosperity. Moreover, something that is truly necessary cannot be given the
title of evil.
The State as Ultimate Representative

The State as a Monopoly Enterprise

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
Monopoly here is defined as an exclusive legal privilege to provide acts via taxes. Due to this financial connection, all of a given State’s citizens
a given good or service enforced at the threat or application of violence. become potential targets of retaliation for disgruntled foreign actors. If all
Fitting within the scope of this definition is the State’s role as security property in a given geographic area is seen as generating revenue for the
provider. The State assumes and enforces the exclusive right to provide State, then it naturally represents a potential enemy target. It is this very set
general security against aggressors both domestic and foreign. Despite the up that has brought about the modern form of total warfare.
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 Self Defense
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 The State has a tendency to disarm the populace so that it may be
these security threats when expanding its own budget for defense. Take, for able to more effectively assert its dominion. However, this act of
example, the destruction of the twin World Trade Center towers. disarmament only increases vulnerability to foreign invasion as a potential
Subsequent to the terror attacks on 9/11, the Department of Defense invader would otherwise have to worry about State forces and heavily armed
budget was massively increased, federal agents took over the role of civilians. A heavily armed civilian populace constitutes a dangerous and
providing airport security, and the Department of Homeland Security was unpredictable wild card that serves as an effective deterrent against
born. invasion.

The Economic Calculation Problem The Moral Hazard

The State has no access to an accurate pricing mechanism with The State’s ability to externalize the costs of aggression onto
which to evaluate the profitability of its operations, so waste will necessarily taxpayers creates a moral hazard that enables it to implement more
abound. This is because its revenue is derived from taxes as opposed to aggressive and costly policies than it otherwise could. Without centralized

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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 Who will Provide Defense?
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 Various types of insurance agencies (DIAs) will likely take over the
property violations by competing security and arbitration agencies. role of security provision for the following reasons: They have a large
In addition to the State’s comparatively increased propensity for amount of capital required to cover any claims made immediately after their
engaging in aggressive activities, it provides no clear standards or provision of coverage. Hoppe explains:
measurements of effectiveness for its defensive services, and thus is much
less accountable for any shortcomings. This is no mere accident. A [Insurance agencies] operate on a nation-
democratic State has less deference still for long term defense or foreign wide and even international scale, and
policy impacts, as its ruling agents are only given temporary access to they own large property holdings
positions of authority. These temporary office holders are incentivized to dispersed over wide territories and
exploit their positions of power and the resources they command as much beyond single state boundaries.
as possible with no regard to maintaining their capital value. This is because Accordingly, they have a manifest self-
the costs their policies generate may be deferred to their successors, the tax interest in effective protection, and are
payers, and future generations through debt financing and inflation. big and economically powerful.
Moreover, as politicians are merely stewards of the public domain, any Furthermore, all insurance companies are
advantage they do not press while in office will disappear forever. They may connected through a network of
utilize, but cannot directly sell State assets and pocket the receipts. Once contractual agreements of mutual
their official terms expire, they are unable to tap the State's resources in assistance and arbitration as well as a
such a manner. system of international reinsurance
agencies, representing a combined
economic power which dwarfs that of
The Free Market Solution most if not all existing governments.120

They have the financial incentive to prevent vandalism, violence, and

Properly Aligning Incentives 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
Humans are rationally self-interested creatures. Due to the conflicts insurance agencies already exists.
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 The Mechanics of Free Market Security Provision
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 Defense Insurances Agencies (DIAs) will incentivize people to live
whole, people are comparatively more inclined to take care of their own in safe and easily defendable areas by offering them lower premiums. DIAs
property than they are to take care of common or public property. 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

120 Hans-Hermann Hoppe, "The Case for Private Security" in The Private Production of
Defense (Auburn: Ludwig Von Mises Institute, 2009), 22.
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premiums for those who can provide them with proof of personal his/her act of aggression. Therefore, having access to such a map
defensive capabilities. In this way, DIAs are able to incentivize good may deter him/her from targeting covered homes. Second, the
behavior and self-defense whilst simultaneously discouraging misconduct. people who do not patronize this service may realize their lack of
Furthermore, it is in the DIA's financial interest to investigate, detect, and coverage encourages and consolidates aggressors as they begin to
apprehend aggressors to hold them accountable for their crimes, as specifically target homes without the resources of DIAs to defend
opposed to having to cover damages out of its own pocket. Contrast this them. It is this prospect of aggression that will further incentivize
with the agents of State-provided security who will laugh if asked to track their adoption of DIA coverage.
down a stolen radio, or to compensate one for it. • Various businesses may decide to restrict business to individuals
As insurance revolves so much around the collecting of valuable who can provide proof that they contribute to a DIA. This
information – namely, risk and financial assessments – it seems likely that restriction may be set with the intention of gaining PR for
DIAs would keep tabs on aggressors and share them with other insurance promoting the defensive strength of these free territories. Custom
agencies, much like banks share information between themselves regarding and culture play strong roles in circumventing the traditional issues
bad credit risks. Banks, insurance agencies, law firms, and others could associated with collective action problems. Due to reputational
share this data so that they may be able to enjoy reciprocal relationships, considerations and our adopted social mores, most of us leave tips
allowing them to better determine the security risks in various at restaurants even if we plan on never returning to them. Likewise,
environments. This “discipline of constant dealings” is what also in such a free society, people would likely encourage others to
incentivizes these various agencies to honor their agreements with one contribute to protection agencies as doing so benefits everyone
another. That is to say, many of them will realize that the long run benefits with additional security.
of their cooperative relations in this capacity will likely outweigh the short • Many residential or commercial areas may implement exclusionary
term benefits of reneging on a current undesired arrangement (such as an policies prohibiting the entrance of uncovered persons. A lack of
unfavorable arbitration ruling). The sharing of this information on various DIA coverage may indicate two things: they are either unable to
aggressors will have the mutually beneficial effect of allowing each of these afford or are ineligible for coverage owing to a history of recurring
agencies to set premiums which correspond more closely with actual risks. aggressive behavior. These areas would be disinclined to invite
persons lacking coverage as they would be unable to prove civilized
behavior.
The “Free Rider” Problem

Of Secret Armies
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 It would be catastrophic to realize the agency to which one
suggestions for how to mitigate free riders and fraud: 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).
• The DIAs may provide their clients with identifiable signs or When individuals have the option to browse and purchase protection, they
medallions to carry on their persons to indicate coverage. DIA will doubtlessly take into consideration the trustworthiness of the
agents may also have, in addition to a database of covered persons, organization in question. Just as no one invests in a safe before being
programs to provide their clients with tracking devices as a means assured of the integrity of the lock, so too will scrutiny be placed upon the
to monitor and locate them when endangered. The client may be capacity of these organizations to effectively neuter and bind their own use
incentivized to carry such a device by the prospect of reduced of force. The threat of an agency using its resources to hire mercenary
premiums. soldiers against its own customers will be felt by all, and that consideration
• They may publicly post maps of their covered and uncovered will play a serious role in one's patronage. As this will be one of the primary
households. This will have a two-fold effect: First, it is likely that concerns shared by most customers, the onus will be on the DIAs to set up
many aggressors would take into consideration the level of security their service in such a way that its prospective clients are assured that no
around a household or person before deciding to commence such secret army bent on conquest will ever manifest, let alone turn against

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them. The DIA may be able to qualm these concerns by subjecting itself to lacking Eurocentric conceptions of hierarchical legal systems, have
random third-party arms inspections, and by obliging itself to pay X appeared to Western invaders as idiots or savages, without government,
amount of money to its clients if it is found to be operating outside of justice, law, civility, without nuance or subtlety at all. In some instances,
contractual guidelines, and in still other ways. This money may be kept in an where the similarity between peoples was great, nation-states have
escrow account. In this way, the client may be assured that the DIA will not recognized the sovereignty of free territories. For instance, between the
be able to renege on this agreement without serious financial recourse. Revolutionary War and the ratification of the Constitution, each American
Additionally, it would be very difficult for such an army to be colony became a sovereign, an independent political autonomy. Relations
assembled, as the costs of amassing such a force would necessarily cause a with foreign nations would depend on much, including comparative
rise in premiums for this DIA’s customers. However, such a rise in religion, trade, ethnicity, language, wealth, and the character the people
premiums would drive them away to competitors and cause a major demonstrate abroad.
disruption in revenue. Finally, it will be difficult for this DIA to find There are a number of reasons, however, to regard the institutional
suppliers willing to fulfill massive orders for materials relating to such an structure of the defense organizations in society as a crucial matter in determining
endeavor, as they too are concerned with their reputation, and do not wish foreign relations. As in other aspects of life, the incentives matter. In an
to abet murderers and robbers. anarchist society, there are many defenders, each armed with their own
skills. Potential invaders would recognize a very different structure than
they are used to seeing. Instead of a single organization acting to defend a
Preventing the Manifestation of a State 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.
A voluntary society, replete with competitive upstarts, would be a As there is no State to defeat, there is no existing tax machine to acquire.
decentralized and dynamic society. Protection could take the form of There is no easily-accessible mechanism with which to rob one's recently-
martial arts, shooting practice, a gang or clique, professional security conquered subjects. The terrain of an anarchist society further implies
agencies, and any number of as-of-yet undiscovered means. In order for a guerrilla tactics and insurgency, counter-economies, encryption tools, large-
State to (re)assert itself onto a public, it would need to defeat every scale gun ownership, and further barriers to State encroachment.
competitor that could defend itself among any number of these lines. If a Indeed, beyond this, the prospective invader would have a very
powerful army bent on domination did somehow manifest, most, if not all, difficult time garnering the support for such an invasion, as there would be
of the remaining DIAs would be compelled to band together to counter the no grounds or justification for such an act. If a foreign State had a
State's aim of conquest in the interest of their own personal and financial legitimate issue with a particular person or group of people, then the DIAs
survival, along with the increased attention from having acted heroically. would happily offer to mediate and resolve the issue, either dissolving or
Competitors to the State may utilize any number of attack vectors to covering the claim as trials determined. As individuals in such a society are
neutralize the threat posed by a State, including physical impediments, not “citizens” of any nation, but are free and independent people, the only
cyber-warfare, espionage, assassinations of key figures, ending/establishing potential for retaliation or calls for retribution would be against specific
commercial agreements and treaties, influencing social opinion, inciting individuals. Without a particular government to blame, foreign aggressors
riots, and other ways. However, even granting the risk that a State may have a more difficult time with the act of dehumanization. Consequently,
manifest in a stateless society, it must continue to be fought for the same potential invaders would have to consider the risks of losing legitimacy at
reasons many choose to fight cancer despite the possibility of recurrence. home and abroad for attacking free territories. 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
Foreign Nations and Free Territories 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.
The relationship between organizations of free peoples and Historically, the leaders of other nations are hesitant to invade countries
established nation-states has been varied over the course of history. Many armed with nuclear weapons as their own personal survival will be directly
kings, presidents and parliaments have waged cruel war on “natives” who, threatened in pursuit of such an endeavor.

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Trusting Private Actors With Nuclear Arms Worst Case Realized

Nuclear warheads and other weapons of mass destruction are In the event a foreign belligerent attempts to conquer or kill groups
designed specifically to indiscriminately annihilate groups of people. There of free people, they would first encounter the civil resistance of their own
cannot be a targeted use of a hydrogen bomb or a vial of plague; by their people, and then the physical resistance of their victims. Without a State to
nature, they are intended to spread and cause damage to any human, guilty provide defense, protection of property will be ensured by mutually
of an injustice or not, and cause terrifying pain and death.121 That said, these coordinating defense firms. Most of the defensive agencies would likely
weapons currently exist, and until the day they are abandoned and band together to ward off any foreign aggressor for the sake of retaining the
disarmed, they will be held by some parties. It would be more advantageous capital value of their overlapping covered territories. Furthermore, these
for DIAs to acquire nuclear weapons as opposed to the heads of state of free territories may have the technological advantage over any opposing
various nations. Of course, the onus will be on the DIAs to discover the outside force since free markets tend to produce more advanced technology
right configuration of checks and balances within its operational procedures and attract stronger talent, all other things being equal.
to assure its prospective clients that such weapons will not be used without In defense, guerrilla and/or asymmetric tactics would likely be
just cause. Moreover, they will have the burden of coming up with a way to implemented as they have proven to be highly effective against much
demonstrate that such weapons will not be used against innocent people. stronger foes. Take, for example, Vietnam, the Soviet/Mujahedeen conflict,
The obvious reason is purely financial: if such agencies incur any form of and today’s prolonged War on Terrorism. It would be far more expensive
collateral damage, they would be subject to the same legal and financial for the invader to take offensive actions than it would be for the defender
liability as any other individual. Another reason is marketing, branding, and to take defensive actions through unconventional means. The resultant
how the agency wants to be seen – as a paladin on a hill, ready to protect, financial drain and loss of lives suffered through attrition will serve to
not a marauding berserker, ready to plunder. dampen the invading country’s support, which is requisite for its sustained
There are no reasons why a State should demonstrate an advantage involvement. Moreover, because there will be competing defense agencies,
over protecting and safeguarding the use of such weapons over similar there will not be any system-wide vulnerabilities in which the invading force
attempts made by a DIA. It is individuals that handle nuclear weapons can exploit. The defense will be decentralized and have many independent
under State control just as it is individuals who would handle them under sources of power, communication, and weaponry. One must also consider
the auspices of a DIA. One chief difference, however, is the incentive the inherent advantage afforded to those with previously set up defensive
structure: the survival of a DIA is predicated upon the proper handling of fortifications. Unlike in other State realms, the general populace will be
these dangerous weapons, whereas the State may easily fail in such a duty, much better armed due to the lack of gun prohibitions and the presence of
and yet demand more funding for the sake of accomplishing the task more financial incentives provided by DIAs for people to develop their own
effectively in the future. In business, failure is met with losses or liquidation; defensive capabilities. Finally, people from these free territories would likely
in government, failure is met with larger budgets. One may see how the have valuable trade relations with the citizens of foreign countries; thus any
prospect for an increased budget may make the State a poorer candidate for threat to these prosperous trading ties may prompt these foreigners to
handling such dangerous materials than a private defense agency. request their own governments to join in the defensive efforts against such
an invading nation.

Conclusion

121 Rothbard, “War, Peace, and the State" in Egalitarianism, 115-32. “These weapons The incredible benefits of security offered in freed markets are not
are ipso facto engines of indiscriminate mass destruction. (The only exception would confined to a more “economical” use of resources with fewer incidents of
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
crime. In the wake of a safer environment, human cooperation is truly able
similar weapons, or the threat thereof, is a sin and a crime against humanity for to abound and flourish. This will increase the rate of technological progress
which there can be no justification.”
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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.
Chapter Ten
TRANSPORTATION NETWORKS

Economics of Public Roads

IN DISCUSSING THE operations and economics of an anarchist

society, specific attention must be paid to understanding transportation
networks, including their infrastructure, their environment, their
management, and more. Because networks that connect people are so
valuable, many people consider parts of such a network public. They regard
everyone as having “share” in the network, and that, therefore, the State,
being “impartial,” should be its steward. This is the popular opinion
regarding the maintenance and upkeep of roadways, highways, waterways,
and even the airspace.
Today, the vast majority of roads and other such networks are
funded through means of expropriation: taxation. Taxation is simply the
confiscation of the property of others enforced through the threat or
application of initiatory violence against dissenters. Predictably, this
constitutes a clear violation of libertarian non-aggression. Many believe that
only by such shakedowns are roads and such able to be financed. Unlike all
other goods, narrow strips of painted land are supposedly unable to be
produced in sufficient quantity or quality by market interactions emerging
from freely consenting adults.
In reality, roads may be sufficiently financed through voluntary
means. These funds may come from any number of sources: the businesses
they connect, individual drivers themselves, and others. Various charitable
organizations may offer travel credits to rehabilitated or impoverished
members of society. In any case, payment would fall only on those who
assume it – never on uninvolved third-parties – and use of the road would
be subject to the discretion of its legitimate owner(s). This is in
contradistinction to State provision where taxpayers are mandated to fund
all roads, including those some will never use. It should be clear that this
arrangement does not require one's prior consent; it is an imposition, not a
purchase. In addition to the injustice of their provision, State roads are
economically wasteful and dangerous.122

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The collectivization of roads carries many economic disadvantages. increased expenditures on roads and highways every year by the State: an
Often times, advocates of the State will make critiques of free markets, increase in cost which is borne by the taxpayer. Because State agents do not
which inevitably apply to the State as well. Such folly will be avoided here. bear the cost for public services, they will generally favor and promote
In the first place, as roads provided by States are treated as “public goods,” increased expenditures in various bureaus and departments as a means to
typical consequences related to the tragedy of the commons emerge. secure their own livelihoods.
Because nobody can exercise ownership claims over public roads there is a In the third place, the State lacks a pricing mechanism. Even
comparatively lesser incentive to maintain their quality. As no individual can supposing that the State has every intention to provide the most desired
reap the capital value of the resource in question, the incentive emerges for road service to the greatest number of people, without a resource-allocation
each individual to consume as much and as quickly as possible. Public roads mechanism like the price system, it cannot possibly hope to discover the
will be regarded as “free for all” and massive over-consumption in the most economical manner in which to do so. This sort of optimization is
forms of traffic jams and rush hours will be the result. Similarly, one may only possible when dealing with numbers derived from voluntary
see that an individual is more likely to keep his own yard landscaped than transactions. The demand for a good or service is represented by how
he is to take over the landscaping duties of a public park. It is a fact of much, and at what price, people as a whole are willing to purchase it. Thus,
economics that people are more willing to take care of their own property the price system takes into account to what degree consumers desire a given
than they are to take care of common property. good or service. It is superior to pure voting, which cannot capture the
In the second place, by monopolizing the road network, the State relative intensities of the desires of each individual for a given plan. Perhaps
ensures there is no authority higher than itself through which to hold its some prefer roads to be managed one way as opposed to another, but many
own agents accountable. Naturally, this creates a moral hazard in the State’s may prefer more for those resources used to be employed for an entirely
provision of any service. Moreover, the State offers itself no quantitative different end. The pricing mechanism, untainted by government
standard by which others may hold it accountable, such as levels of traffic interference, guides entrepreneurs into making those economic decisions
congestion, road serviceability, or the number of road fatalities. which yield the lowest opportunity costs, and encourages them to
Additionally, State agencies lack a profit/loss incentive due to their power concentrate their energies on tasks for which they are well-suited. For the
to externalize costs onto the general public through taxation. There is no entrepreneur to optimize the allocation of his resources, he must offer them
relation between improved road infrastructure and State revenue. As the at the market clearing price. This is the price at which consumers are willing
State lacks a profit incentive, to improve its services, it is left to take by to purchase the same number of units of a given product or service as those
force whatever amount it deems necessary in order to maintain and grow being offered. Generally, this clearing price will yield the entrepreneur the
the service. The State is actually incentivized to provide lower quality greatest amount of profit as, by definition, there are no mutually-agreeable
service and charge greater prices. This is a result of the disutility of labor, exchanges left to complete. Efficiency in economics refers to the number of
which simply states that leisure is preferred to labor, and that people prefer people whose desires are being satisfied with a scarce amount of resources,
to exert the least amount of energy required to achieve a particular end. The and to what degree, in relation to the available set of alternatives. In order
influence of the disutility of labor on State agents is evidenced by the for one to get an accurate picture of what people want, where they want it,
and how much of it they want, he must first have access to profit and loss
122 A study conducted by Infrastructure Report [Link] in 2008 showed that figures – accounting – generated on the market through voluntary
“Americans spend 4.2 billion hours a year stuck in traffic (about 40 hours a year per transactions. In contrast with entrepreneurs on the market, the revenue the
motorist) at a cost of $78.2 billion a year – $710 per motorist. Roadway conditions State accrues is through involuntary means. Thus, it must necessarily have
are a significant factor in about one-third of traffic fatalities. Poor road conditions an inaccurate picture regarding how best to economize the resources it
cost U.S. motorists $67 billion a year in repairs and operating costs – $333 per commands. Consequently, there will be an over production of roads in
motorist; 33% of America's major roads are in poor or mediocre condition and 36%
of the nation's major urban highways are congested.”
some areas and an underproduction in others.
[Link] According to statistics It may be the case that many politicians are motivated and
provided by the National Highway Traffic Safety Administration, between 1995 and influenced by the aim of providing safer and less congested roads and
2010, there was an average of 37,000 fatal crashes on highways per year. highways, but it would be naive for one to assume that is their only
[Link] The renowned Austrian Economist motivation or influence. Political factors and special interests have a
Walter Block projects that under a completely privatized road system one may
expect closer to 8,000 casualties per year as opposed to the State’s 37,000. Walter
considerable effect on decisions regarding where to allocate resources for
Block, "Road Privatization: Rejoinder to Mohring" in The Privatization of Roads the production or maintenance of various roads. Unfortunately, these
and Highways: Human and Economic Factors (Lewiston: Edwin Mellen, 2006).
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outside influences are seldom in line with consumer interest. change in management from a public entity to a private one, whether in
Some critics may object that private roads are perfectly legal, yet charitable or commercial pursuits. As in many things to do with State
rather uncommon. Though this statement may be true, it fails to identify a administration, the Devil is in the details. After all, it would be a violation of
few key considerations. In order to be a patron of a private road service, libertarian norms if the federal government were to one day claim the Jones
one is not simply purchasing it instead of supporting public roads. He is family owns the entire state of New York. Jones' family management of the
paying twice – once for a private subscription and again when he bears the lives, land, and property in the state of New York would not necessarily
taxes for public roads. The fact that one’s payment for the usage of public constitute a substantial improvement over State management – and may
roads is legally required of him and therefore a sunk cost greatly deters him perhaps be more injurious. The government should not, then, “privatize” in
from choosing to purchase additional road services. Moreover, the State has this manner. A preferable solution is desocialization; return the land and
usurped much of the prime real estate for road building through the use of property to those who provided the funds for their purchase/production:
eminent domain. This is land theft through legal privilege, which its private the taxpayers.125 The free transfer of equity from previously State-managed
counterparts are not able to commit with impunity. Private roads are not as industries would quickly create markets and entrepreneurs eager to earn
prevalent as one might expect today because the State grants itself business.
illegitimate legal privileges over this industry via its exclusive powers to Private road providers have a vested interest in the flourishing of
coercively assert its will over others. the businesses, cities, and residential communities they connect as their
In the fourth place, the costs of building and maintaining roads are abounding value will increase the demand for the roads which connect
externalized to the taxpayers. This serves to artificially increase the demand them. Naturally, the self-interest of the road provider is aligned with those
for those industries affected by road travel, namely the oil, automobile, and of his customers. As road providers realize that their customers desire
rubber industries. This is why many of the special interests beckoning for assurances regarding safety and liability, the road providers may require all
the expansion of the highway system tend to come from one of the three their patrons obtain insurance. The premiums the insurance agencies charge
aforementioned business sectors. The result of such an expansion is a will serve to regulate their clients’ driving habits. These agencies will be
greater amount of profits and resources directed towards these industries permitted to take into account all factors or demographics that indicate
than there otherwise would be in a free market system. These industries are one’s actuarial risks in the determination of his premiums. Discriminating
often times criticized for being exploitative and monopolistic – rightfully so. practices, however, will be tempered by public relations considerations. A
However, this has little to do with their greed and much more to do with bigoted reputation may be followed by a loss of profits and business. A list
having access to the coercively empowered institution known as the State. of some factors that may be used when determining the premiums for
Just as mafia families have connections in various industries relevant to various clients include:
their power, so too does the State. It cultivates and distorts firms in many
industries: banking, entertainment, mass media, education, etc. Naturally, • Driver safety courses taken
those industries related to movement of persons and materials become • Frequency of driving
captured by States. This relationship is absolutely not representative or • Time of day typically driven
consistent with freed markets, as they are inherently absent such an
• Driving history
aggressive State apparatus.
• Installation of safety features (e.g., automatic braking, etc.)

Privatization and Desocialization The auto insurance agency may verify some of this data by offering their
clients GPS devices, which track driving habits, in exchange for lower
monthly premiums. These insurance agencies may also encourage or insist
Many interpretations exist regarding the concept of privatization. clients wear seat belts, drive soberly, and practice other risk mitigating
Some see privatization as government agencies doing business with their behavior as a condition for maintaining coverage. Alternatively, the road
own market-like imitations123, while others see it as a pure gift to any providers themselves may require their prospective patrons to adhere to
“private” actor whatsoever.124 In reality, privatization simply refers to the such safe driving behavior as a precondition to using their roads. Insurance

123 Examples of this include Fannie Mae and Sallie Mae. 125 Murray N. Rothbard, "How and How Not to Desocialize" in The Review of Austrian
124 Privileged contracts given to specific construction companies come to mind. Economics 6.1 (1992): 65-77.
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agencies do not expect their customers to take all of these steps simply out
of the kindness of their hearts. Rather, it is in the best financial interest of
both the auto insurance agency and road provider alike to ensure that A completely privatized road system may also be better for the
neither you nor your car are harmed during your trip. environment in that it would encourage people to use lighter and more fuel
Another valuable benefit of complete road privatization is the efficient cars. Cars that contribute less wear and tear on the road will cost
presence of uninhibited competition. Such competition need not necessarily their drivers less in subscriptions, since such factors will likely be factored
be between two roads going to the same destination. Rather, it could be into the price of using a given road service. Likewise, people may be more
between various road provider companies. In order to secure future incentivized to car pool or travel via bus or some other form of mass
contracts or venture capital from investors, these companies will have to transit. This, of course, would result in less harmful pollutants emanated per
demonstrate a reputable and competent ability to manage roads that are traveler. Furthermore, because people have a choice of whether or not to
safe, open, and profitable. It is this reputation which will influence any contribute funds toward road services, cheaper and more efficient
potential investor or patron to choose provider X as opposed to provider alternatives may arise such as maglev trains or flying vehicles. A privatized
Y. From the consumer’s perspective, many more factors than price alone road system would be more judicious in its distribution of costs as road
may be considered in his decision. For instance, he may value the speed and providers strive to charge each customer in proportion to the degree of
responsiveness of a given road company’s towing and ambulatory services. services used. Private road providers may also charge higher rates during
Moreover, this prospective patron may evaluate the quantitative standards peak hours as a means to increase road safety by decreasing traffic
by which various road companies hold themselves accountable (e.g., the congestion. In other words, with peak pricing, the timing of transportation
speed of rush hour traffic). Such promised standards could be supported by can be staggered and road consumption can be smoothed out over the
the road providers’ contractual obligations to compensate any individuals course of a day. Due to this, one’s employer may take into account the
affected by conditions that fall outside of said standards. For example, if additional costs of using the road during certain peak hours when creating
someone misses a flight due to excessive road congestion, the road provider his employees’ work schedule. Scheduling employees around peak hours
may offer to pay for the customer’s next plane ticket or simply compensate would save them money and/or prevent the employer from having to
him for his troubles. increase their wages as a means to compensate for additional transportation
In contrast to the State provision of road services, a privatized fees.
system would yield a greater level of diversity in road planning amongst the
competing road companies. The allure of larger profits will incentivize these
road companies to continually refine the efficiency and safety of their road Security Considerations
systems. It is, however, unlikely that this competition would result in a
severe mismatching of road rules, as each road provider would understand
that such awkward and tedious transitions would serve to deter and The desire for safety is a universal trait. Few people desire to shop
discourage customers from using their roads. Compatibility is important in at a store where they are likely to be robbed, or to travel through a
protocols, principles, and rules. Take, for example, the private railroad neighborhood where their car may be stolen, or to drive on a road where
companies of the 1800’s and the cell phone companies today. Each dangerous road racing, daredevils, and drunkards abound. This is an
implemented a high degree of interoperability in their services so as to obvious concern, and as such will be addressed by the owners. The
maximize their respective customer’s satisfaction, which ultimately owner(s) of a given road will have a great financial incentive to provide
translates into profits. Imagine owning a Sprint phone and being unable to reliable measures of security, as this will directly impact the value of their
call someone with Verizon. Finally, entrepreneurs have access to an services and property. The means by which they can address these issues
unadulterated pricing mechanism which allows them the ability to make can include video surveillance, hired police services, speed detecting
rational economic calculations – i.e., whether or not one aspect of their sensors, etc. A rule might be stipulated that drunk drivers involved with any
current service should be altered, retained or scrapped. collision automatically assume the liability. Other conditions and terms of
use will exist on other roads, and the constant desire to attract customers
will incentivize a continual exploration and experimentation into various
rules aimed at discovering their optimal configuration. Perhaps speed limits
Environmental Considerations may be rejected and individual sets of rules for each lane of traffic will

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emerge. These road providers, as legitimate business owners, can set the Price Gouging
terms of use for their property just as any restaurant, shopping mall, or
amusement park owner(s) can specify accepted behaviors and demand
adherence to regular norms. Customers unwilling or unable to abide by As the real estate and physical road improvements are goods
such specified rules will be prevented from using this particular road owned by road providers, they are free to charge any amount for their
service, and must arrange for alternative transport. This is in contrast with services. The GoodSmith road network is reliable and often uncongested,
the State, who is not the legitimate owner of the roads and, therefore, may and it charges a penny per mile. ShippingWay, however, allows 18-wheel
not justly apply or enforce any policies regarding how they are to be trucks and maintains elaborate safety mechanisms to protect drivers, and it
utilized. charge three pennies per mile. Any individual road provider who
dramatically increased his rates would be met with desertion. A price hike
encourages his customers to patronize competing road services.
Possible Payment Methods Additionally, such a hike in prices would encourage his customers to
increase their level of carpooling, thereby cutting into his profits. Such
carpooling, once embraced on a mass scale, may not revert back to its
Entrepreneurial road providers would realize that frequent stops to original levels even if the road prices return to their original rates. This is
throw change in a bucket would congest their roads and deter future because many customers may have become accustomed to their new
customers from using them. The installation of digital readers on customer arrangements, or would simply not trust the company not to raise rates so
cars may be a possible payment alternative as they can communicate with drastically again in the future. Additionally, such capricious price swings
sensors on the road that track how far a person has traveled and the weight would damage the road provider’s future business prospects with other
of his vehicle. With this information, the road provider may send the businesses or customers. Such actions may also incite economic ostracizing
customer a bill in the mail, directly charge his bank account, or send as a means to pressure this road provider to reduce rates or suffer major
invoices to a digital currency wallet. Some road providers may offer fixed losses of lucrative business relations with other members of the community.
rates for those who do not want to be tracked in such ways. These rates will If none of these aforementioned consequences hold sway, the
likely be higher than those determined by actual usage, but may be seen as a businesses which are currently serviced by his highway may campaign to
worthy value to consumers who place a high degree of importance on raise funds in order to bring in an alternative road provider. This sequence
maintaining anonymity. of events will be the market’s way of weeding out such disruptive price
hikes, and leaving behind, in its wake, entrepreneurs whose primary aims
are to satisfy their customers. One’s ability to satisfy his customer base is
Capital Considerations what ultimately determines the prosperity or failure of his business.

As road networks need to interface and connect with networks of Resolving Difficult Situations
competitive providers, constructing the foundations of such a network can
quickly become cost prohibitive. To finance early stages of construction,
road providers may seek out venture capital. Alternatively, some expanding In the event critical geographic regions are already owned, road
businesses or residential developers may offer to help finance such an companies may implement any number of solutions including: offering to
operation as they have interests in areas not currently serviced by roads. pay the owner of the obstructing property for passage through his property;
Finally, there is nothing written in stone demanding that one company has building, over, under and around the individual’s property; organizing
to own a road as extensive as a cross country interstate. Different sections public campaigns to encourage road construction, and more.
of a conjoined road could be managed and owned by different road Moreover, hypothetical consumer fears – like a single
companies. In this way, the costs of starting up or maintaining a vast encompassing road holding a residential community hostage – are often
highway can be spread out amongst many companies. unfounded. It is in the road provider's economic best interest to not breach
contract or capriciously raise prices to exorbitant levels as doing so would
only cause ostracism and losses in future business. For instance, future

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prospective residents may be deterred from moving into this community

due to the high travel rates. With fewer residents, there would be fewer
paying customers for the road provider. Additionally, the issue may be
circumvented by building an alternate road above or below the road which
surrounds the community. Moreover, people would likely acquire
contractual assurances regarding access to their homes prior to sale. The
Chapter Eleven
terms of this road access may be discussed as a precondition to purchasing
a home. For instance, one may only offer to buy a given house if the road EDUCATION
provider servicing it agrees to certain fixed payment, service, or quality
conditions. Finally, this issue would most likely be addressed by a residential
developer prior to construction. Either the real estate agency or the building EDUCATION IS, WITHOUT a doubt, an essential component of life.
developer may understand that people want assurances that there are In fact, by the mere act of living consciously, one cannot help but observe
dependable and predictable means to travel from their houses on a reliable the nature and behavior of the world and its inhabitants. Every day is filled
pricing schedule. Accordingly, the developer may require such concerns to with experiences which may either affirm to a greater degree one's currently
be addressed in his contract with the corresponding road service provider held beliefs or reveal something new and previously unobserved, which may
prior to starting construction of the residential community. cause his beliefs to be altered accordingly. Life involves the process of
The exact shape and nature of transportation networks in a free refining one's understanding of himself, others, and the environment
market system cannot, of course, be predicted. However, considering the surrounding his existence until he is no longer. Hence, education is held in
more closely aligned economic incentives, one may conclude with high regard and rightly so. However, the value of education by society in
confidence that whatever form they take will correspond far more closely general has, as many other noble concepts, been manipulated into justifying
with ever changing consumer preferences. a strict regulation of the minds of the youth. Language, arithmetic, and
basic literacy seem to be indispensable building blocks for future learning.
Many have cited the importance of such skills when advocating public
schooling, compulsory attendance, and the regulation of curriculum taught
in both the public and private spheres. Tragically, such mandates and
regulations impede the flowering and proliferation of these essential skills as
well as innumerable other avenues of knowledge relative to the education
and growth of children in free societies. Competition and economic
calculation inherent in freed markets incentivizes and enables entrepreneurs
to provide many methods of teaching tailored to an individual's mental
acuity and personal interests. As with knowledge itself, such teaching
methods will never be perfected, but they will be most efficiently and
perpetually refined under a paradigm of freedom from administrative
coercion.
It is indeed because proper education is so integral that we cannot
afford to allow it to be regulated, restricted, and usurped by State
functionaries. The use of aggression to ensure the provision of any product
or service precipitates and manifests the very fears for which its use was
originally demanded. This is no different in the provision of education. The
only tool wielded by the State to which market participants are not privy is
that of aggression. Markets are defined by their absence of systemic
aggression, because it may only be used to destroy, diminish, and pervert.
Aggression does not satisfy the inherent demands of existence, i.e., the
demand for acquiring food, shelter, water, education, love, etc. On the
contrary, it exacerbates such needs and creates a zero-sum game between
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the members of society, where one may only gain at the direct expense of
others. Aggression thus promotes chaos, not cooperation. Only when Positive Rights vs. Negative Rights
individuals choose to deal with each other voluntarily and respect private
property rights may their dealings result in mutual benefit and a net increase
in their wealth. Ludwig von Mises describes the economic purpose of Many people believe everyone has a right to education; others
cooperation: contend that we have rights against such impositions. For the purpose of
disentangling this philosophical mess, a review of positive and negative
The fundamental social phenomenon is rights is in order. Positive rights essentially entail that one is entitled to a
the division of labor and its counterpart certain product, service, or environmental arrangement, i.e., that some other
human cooperation. Experience teaches person must perform some activity in order to fulfill such rights. Conversely,
man that cooperative action is more negative rights refer to rights which an individual holds that entitle him to
efficient and productive than isolated be free from certain actions. Put differently, negative rights entail that
action of self-sufficient individuals.126 individuals may not justifiably engage in certain activities against others. In
other words, positive rights require others to commit certain acts whereas
Only this paradigm of voluntary cooperation and peace may truly mitigate negative rights require them to refrain from particular behavior. Examples of
the risks we encounter as organic beings which require certain resources to positive rights may include a right to healthcare, education, or food; a prime
survive, multiply, and thrive. Finally, through the promotion of diversity example of a negative right is the right to free speech.
and specialization of tasks inherent in the division of labor, we may be able Philosophical libertarians believe that positive rights are morally
to optimally enhance our wealth in the material, mental, and psychological illegitimate as they require others to commit or perform certain actions
realms. Peaceful markets are the key to promoting such ends. Rothbard regardless of their consent to do so. Having a right entails that its violation
explains the role of diversity in creating a flourishing society: implies the use of violence would be justified in attaining a remedy or
restitution. Thus, positive rights entail that one may use violence against
But human individuals, despite similarities another if he does not receive a particular product or service to which he is
in ends and values, despite mutual supposedly entitled. The only rights people have, according to free market anarchists
influences, tend to express the unique (libertarians), are property rights. The Non-Aggression Principle itself is simply
imprint of the individual's own a derivative of one's ownership of his own body and property. Owning
personality. The development of something, after all, entails the exclusive right to employ said something so
individual variety tends to be both the long as such employment does not entail aggressive interference with the
cause and the effect of the progress of persons or property of others.
civilization. As civilization progresses, Free market anarchists thus believe that to enforce any positive
there is more opportunity for the right is to necessarily violate the negative rights of others. Those who
development of a person's reasoning and espouse positive rights, such as a right to education, believe if one is not
tastes in a growing variety of fields. And receiving the education to which he is entitled, he may coerce another into
from such opportunities come the either providing education or in surrendering a portion of his property for
advancement of knowledge and progress its funding. Property rights, non-aggression, and self-ownership are all
which in turn add to the society's logically incompatible with any inherent positive right. An additional
civilization. Furthermore, it is the variety complication of positive rights is the ambiguity of the level of service to
of individual interests and talents that which one is entitled. Is he entitled to merely being taught the alphabet and
permits the growth of specialization and simple arithmetic? Or is he entitled to be educated in advanced literature,
division of labor, on which civilized calculus, and quantum physics? Perhaps something in between? Any such
economies depend.127 determination is highly arbitrary. If a theory of rights includes such arbitrary
and unclear boundaries, it becomes counter-productive to its purpose of
126 Mises, "Action Within the Framework of Society," in Human Action, 157. mitigating interpersonal conflict.
127 Murray N. Rothbard, "The Individual's Education" in Education, Free &
Compulsory (Auburn: Ludwig Von Mises Institute, 1999), 5.
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State Management vs. Free Market In essence, compulsory attendance laws and the regulation of
curriculum effectively subject children to imprisonment and mass
indoctrination. When a single institution may dictate the length of formal
One of the most pernicious aspects of the public schooling system schooling as well as regulate to a large degree the content which must be
is its compulsory attendance laws. Such laws have the effect of sending taught, such power will ultimately be used to benefit itself irrespective of its
children to school against their will. The effects on a child's creativity and purported goals or intended beneficiaries. A population which at its youth is
psyche from being compelled by threat of force to go to such sterile taught to obey authority for its own sake and that is, to a large degree,
institutions are incalculable. Such institutions are not tailored to his reared by State functionaries (public teachers) will be far easier to control
individual preferences or capacities to any substantial degree. Some children and manage once it transitions into adulthood. Though this end may not be
may withdraw into depression and other anti-social behavior; other children consciously acknowledged or pursued overtly by public teachers, it is
may act out and rebel, which is not only an indication that such a situation nonetheless a prominent result. Even if various politicians truly believe that
is unhealthy for them, but also renders the educational environment for it is in the best interest of all children to be in school for a set period of
their peers less suitable for growth. An environment of child-selected days or to receive a certain type of education, these intentions do not alter
education would eliminate the majority of anti-social behavior. the fact that different children have different interests, aptitudes, and
Institutions that were voluntarily chosen by parent and child alike preferences that must be sacrificed to the central plan. Fully in agreement
would yield greater and more direct incentives to please parents and with Hayek, Mises remarks that “The alternative is not plan or no plan. The
children. Such institutions would provide the methods and content of question is: whose planning? Should each member of society plan for
education that is most highly desired and/or under-serviced relative to what himself or should the paternal government alone plan for all?”129
they observe to be the market demand. In contrast, compulsory attendance The degree to which education is uniform and involuntarily
laws coupled with taxation create an environment filled with moral hazard imposed upon children is the degree to which they will suffer now in the
for these schools. If school funding is guaranteed by the State, then the form of boredom, intimidation, and despair and in the future in the form of
focus will be geared much more towards satisfying government bureaucrats untapped potential, a dulled mind, and a greater susceptibility to the whims
than catering to the desires of parents and, least of all, to the desires of of arbitrary authority. The many hours spent at school enduring tedious and
children. Public schools are only marginally concerned with parental vacuous instruction could have instead been used for more engaging and
satisfaction as they cannot, under threat of force, withdraw their financial stimulating learning activities tailored more closely to the capacities and
support from them. Aaron Smith offers a few remarks on compulsory desires of the individual child. Though a voluntary or free market education
attendance laws: system will not always be perfectly tailored, its incentive structure would be
much more appropriately aligned with achieving the ends of edification,
Current laws vary by state in details, but growth, and maturity than its Statist counterpart equipped with the
they are quite homogeneous in spirit. All exclusive powers to aggressively demand payment for its services and to
require a minimum amount of unilaterally dictate the scope thereof. Even those parents who send their
instructional time (ranging from 160 to children to private schools or who decide to homeschool are still subject to
186 days annually) at approved compulsory attendance laws and curriculum requirements. In essence, they
institutions. The majority of Americans and their children remain subject to the same aggressive and monopolistic
between the ages of 5 and 18 are oversight perpetrated by the State. Aaron Smith comments on the State's
compelled to meet this requirement, with destructive role in squashing private educational alternatives:
several states enforcing slightly more
lenient laws. Although parents are free to Private schools and homeschools are
pursue private education for their rarely truly free-market alternatives to
children, such options are almost always government-regulated education. By
regulated by state governments.128 mandating attendance, states have a

128 Aaron Smith, "The Costs of Compulsory Education." (editorial published at Ludwig 129 Ludwig Von Mises, "Planning for Freedom" (speech presented at the American
Von Mises Institute, Auburn, Alabama, June 22, 2011.) Academy of Political and Social Science, Philadelphia, Pennsylvania, 1945).
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virtual stranglehold on the nature of its size and largesse to its exclusive legal rights to violently impose its will
private education. After all, in order to upon others and to force its subjects to pay for the costs of the
become a state-approved program of enforcement of its edicts through taxes. The State is comprised of human
study at which "official" attendance is beings, just as a corporation, just as a club, just as any other organization is
recognized, private actors are forced to comprised and as such is subject to the same temptations, corruptions, and
satisfy some combination of curricular, perversions associated with arbitrary power. Isabel Paterson describes the
reporting, and testing requirements... The mental constriction such an organization employs:
state's monopoly on what defines
"education" inevitably suppresses Political control is… by its nature, bound
alternative views, thereby eliminating the to legislate against statements of both
complexity and diversity that should be facts and opinion, in prescribing a school
prevalent in the market. Instead, a curriculum, in the long run. The most
homogeneous system is used to serve exact and demonstrable scientific
heterogeneous students — yet another knowledge will certainly be objectionable
cost of compulsory education... The to political authority at some point,
natures of schools should be as diverse as because it will expose the folly of such
the population itself. Curriculum, delivery authority, and its vicious effects. Nobody
method, and instructional time are but a would be permitted to show the
few of the myriad variables that must be nonsensical absurdity of "dialectical
customized if the individual needs of a materialism" in Russia, by logical
child are to be met. Rothbard noted the examination… and if the political
advantage of unfettered development of authority is deemed competent to control
private schools in that "there will tend to education, that must be the outcome in
be developed on the free market a any country.
different type of school for each type of
demand."130 Educational texts are necessarily selective,
in subject matter, language, and point of
This analysis of the State managed education system may be view. Where teaching is conducted by
perceived as hyperbolic to some. However, this has much to do with the private schools, there will be a
doublethink inculcated in the youth during public instruction. Simply considerable variation in different
replace the term "State" with "Corporation" and try to imagine how people schools; the parents must judge what they
would react in horror to the idea of this institution exerting monopolistic want their children taught, by the
control over the education industry, dictating what must be taught and how curriculum offered. Then each must strive
many days out of the year children will have to endure instruction. In for objective truth… Nowhere will there
addition to this, imagine that this corporation is granted the power to force be any inducement to teach the
everyone to pay for this service at the threat of violence, to include even "supremacy of the state" as a compulsory
those who have no children at all! Consider the outrage and slew of philosophy. But every politically
criticisms which would shower down upon such an idea: "monopolies result controlled educational system will
in ever increasing prices," "such a monopoly would suppress innovation inculcate the doctrine of state supremacy
and diversity!" Virtually nothing separates the State from this hypothetical sooner or later, whether as the divine
corporation. The same criticisms which apply to this monstrous monopolist right of kings, or the "will of the people"
apply equally to the State! The State is akin to a mega corporation that owes in "democracy." Once that doctrine has
been accepted, it becomes an almost
superhuman task to break the
130 Smith, “The Costs of Compulsory Education.”
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stranglehold of the political power over public schooling, consumers do not voluntarily pay for this service. Their
the life of the citizen. It has had his body, property is taxed at a rate totally unrelated to what they may have otherwise
property, and mind in its clutches from been willing to pay. Because their payment is coerced, the quantitative
infancy. An octopus would sooner release indicator (price) representing the relative supply of educational resources
its prey... and the demand for these resources is rendered hopelessly muddled.
In contrast, when such services are patronized on an exclusively
A tax-supported, compulsory educational voluntary basis, the price system provides an accurate and objective
system is the complete model of the reflection of the collective value of all resources. These market generated
totalitarian state.131 prices would then serve as an invaluable guide for making economic
decisions as they reflect with greater precision the opportunity costs
associated with hiring one teacher over another or purchasing one
The Economics of State vs. Free Market Education Systems computer over another. Furthermore, such prices allow entrepreneurs to
compare the profitability or efficacy of their business models with others.
Of course, due to one's subjective preferences, maximizing monetary
For a minute, assume away all of the corruption that comes with profits may not be the ultimate goal, however, the level of one's profits or
arbitrary power. Suppose, instead, that every State agent is benevolent and losses would still provide the entrepreneur with valuable feedback regarding
has the best intentions for its citizens. The question now is: how do they which services are satisfying customers and to what degree they enjoy them.
know the most efficient allocation of resources so as to minimize costs? This will be a crucial factor in most business decisions as ignoring
How do those employed by the State know what size a given school should consumer preferences – as public schools are in the habit of doing - would
be? How many teachers ought it to employ? What type of food it should in the long run lead to bankruptcy or business failure.
serve? What method and content of education should it deliver? What Without grants of State protection or legal favoritism, those
assortment of supplies, software programs, and disciplinary techniques decisions which make the most economic uses of resources will also be the
should it utilize? They may hold democratic votes on these questions, but ones that yield the greatest amount of profits for entrepreneurs, aligning
scarcely anyone voting would have any idea of the opportunity costs their self-interests with the interests of the consumer. Unlike the public
involved in their decisions. The parents would, of course, want the "best" schooling system, there will not be widespread misallocation of various
computers, teachers, supplies, food, etc. for their children yet they will not supplies and services. There will be objective indicators, noted in terms of
desire the high taxes that may be associated with the provision of such profits and losses, which reveal whether or not the employment of a
goods. Perhaps the capabilities of super computers exceed the demands of particular teaching method or the content taught is desired or if the supplies
the students; perhaps a teacher with a Ph. D would be more optimally used are lacking, necessary, or excessive in the process. The unsuppressed
employed in a college setting as opposed to a kindergarten class. The most competition will continue to drive entrepreneurs to seek more innovative,
obvious hurdle is that every scarce resource used for one end is a resource economic, and tailored ways to satisfy a growing share of the market for
that cannot be used for another mutually exclusive end simultaneously. childhood growth and edification. This is a realistic system for achieving
These calculation issues do not stop merely at the use to which these goals as it takes into account scarcity, opportunity costs, subjective
these educational resources are put, but expand into the general economy. preference, consumer heterogeneity, and the self-interests of educational
More resources used for the educational system result in fewer resources entrepreneurs. The organic market system of freely consenting individuals
being available for other ends, which may include healthcare, food harmonizes all of these factors absent central direction. The resulting
production, provision of security, etc. Because the service of education is satisfaction from such a spontaneous order is something that cannot be
largely subsidized and regulated by the State apparatus, any sort of pricing paralleled by aggressive control or political management, no matter how
mechanism which may have otherwise served as an invaluable guide for competent those in power may be. Certain popular standards will
such resource considerations is now rendered defective. Prices are only undoubtedly emerge from this kaleidoscopic mixing, however, such
effective at guiding economic decisions and determining opportunity costs standards and the successful enterprises that utilize them will only remain
to the extent they are voluntarily and organically developed. In the case of so long as they continue to provide a desired service in a more economic
manner than the competition.
131 Isabel Paterson, The God of the Machine (New York: G.P. Putnam's Sons, 1943),
271-72.
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more than four times the rate of inflation.

The State's Effect on Post-Secondary Education But while the factors of production on
campus have been bid up, just as they are
in any other asset boom, the return on
University tuition is prohibitively expensive, yet attendance rates investment is a bust. In 1992, there were
remain as strong as ever. What accounts for this? Once again, government 5.1 million mal-employed college
meddling has produced an artificially high demand for post-secondary graduates. By 2008, the number was 17
education, which is creating price hikes at an increasing rate. This artificial million.
demand is fueled by subsidized student loans, grants, and the moral hazards
generated by the State guaranteeing privately provided student loans. B.T. Not only are the returns poor, but the
Donleavy comments on the extent to which university students lean on the quality of the product is poor (as in the
State for assistance: case of new-construction quality in the
housing boom). According to the authors
The Department of Education reports of Academically Adrift: Limited Learning
having a $63.7 billion budget in on College Campuses, 45 percent of
appropriations for 2010. It has also students make no gains in their critical
received $96.8 billion from the American reasoning and thinking skills, as well as
Recovery and Reinvestment Act of 2009. writing ability, after two years in college.
The department's website states that More than one out of three college
"department programs also provide grant, seniors were no better at writing and
loan, and work-study assistance to more thinking than they were when they first
than 14 million post-secondary students." arrived at their campuses.
That is roughly 4 million short of every
college student in the country. Does this Many projects contemplated and started
mean that only 22% of students in the during the real-estate boom are never
United States have adequate means to pay completed, as prices are bid up, and
for college? Based on America's economic owners run out of capital. Such is the case
model, this statistic should theoretically for many attending college, as over 45
be impossible. This means that over 3/4 percent of those who enroll as freshmen
of Americans attending higher-education ultimately give up, realizing they lack the
institutions are "in need."132 disciplinary and mental capital, and do not
graduate.133
Former president of the Mises Institute, Douglas French, has this to say
about the effects of State credit subsidization on post-secondary education: Once again, unintended consequences pervade the actions of the State,
despite the good intentions of its subsidized and managed services. It is
Like all booms, higher education has been important to remember that prices serve a critical function for the
fueled by credit. In June of last year, total economic rationing and allocation of scarce resources relative to their
student-loan debt exceeded total credit- demand. Price manipulation by involuntary redistributions of wealth
card debt outstanding for the first time, undermines the ability for prices to spread information of economic
totaling more than $900 billion... All of realities. In this case, student loans are subsidized with tax dollars
this credit has pushed the average cost of involuntarily confiscated from taxpayers and redistributed either to the
tuition up 440 percent in the last 25 years, schools directly or to the students via grants and guaranteed loans. It is no

132 B. T. Donleavy, "The Education Bubble" (editorial published at Ludwig Von Mises 133 Douglas French, "The Higher-Education Bubble Has Popped" (editorial published at
Institute, Auburn, Alabama, May 12, 2010). Ludwig Von Mises Institute, Auburn, Alabama, August 10, 2011).
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surprise, then, to witness how such interventions have inflated the prices host their lectures online absolutely free. Arcane topics such as
and degraded the quality of the higher education services being offered cryptography, technology entrepreneurialism, environmental protection,
today. statistical mechanics, and many others are offered on monthly or quarterly
In distinct contrast, a privatized education system without bases – no payment is asked, and students may enroll or cancel at any time
enormous takings from Peter given to Paul would not be subject to such they choose without obligation. This paradigm of free and open courseware
folly. Entrepreneurs who provided poor services or charged excessive is utterly revolutionizing; the gates of knowledge and information are being
prices would lose business to their more apt competitors who more astutely torn down and free entry is offered to any student, child or adult,
recognized what students wanted and were able to provide it to them. enterprising enough to take part in the course material. This has the
Prospective students would be confronted with the true costs of schooling capacity to educate whole swathes of underclass, marginalized, and
when deciding which schools to attend or whether they should even attend disenfranchised populations who were prevented, directly or indirectly,
formal post-secondary schooling at all. Perhaps they would be happier from participating in the great adventure of higher education.
learning a vocation or participating in an apprenticeship outside of the Currently, under the State-managed education system, anyone who
academic rigmarole of university life. In a free market system, it is the wishes to send their children to a private school is also required to fund
consumer that ultimately determines the configuration of their services, and public schools through taxes. In a free market, however, those who
the providers of those services only benefit insofar as their voluntary purchase education services for themselves or their children would not be
subscribers benefit. paying twice – once for a lean, efficient operation and twice for a bloated,
indoctrination facility. With boundless freedom, a student may take courses
which pertain to his interests as opposed to being compelled by curriculum
What About The Poor? standards to take courses for which he cares nothing, saving valuable time
and money.
Naturally, in such a free environment, there would be disparities in
Perhaps the most common objection to a non-State education the quality of services just as sunglasses from Wal-Mart are of considerably
system is the possibility of the poor having access only to lesser education, lower quality than those offered by Versace. The difference, however, is
if any at all. However, what can be readily discerned is that the costs of that those devices, products, and services which are currently only
education in such a system would be significantly lower than what private accessible to the rich would, over time, tend to become accessible to the
education costs today, as such schools would not have to abide by middle class and eventually the poor. When the middle class and the poor
mandated regulations, occupational licensing requirements, curriculum witness the luxuries enjoyed by the rich, they begin to yearn for them. With
mandates, et al. Schools would therefore have much more flexibility in the this new demand comes an impetus for entrepreneurs to discover a way to
provision of their services. In addition, rabid competition in this industry provide these luxuries to the lesser socio-economic classes at prices they
would tend to drive entrepreneurs providing education to continually can afford.134 In other words, the envy of the middle class and the poor
decrease costs and increase the quality of their services. represents a business opportunity for entrepreneurs that drives the market
Moreover, educational institutions in free markets would not have to find cheaper and more efficient ways to make these goods more
to unfairly compete with the State which is able to demand payment from accessible. This has been the case with automobiles, computers, colored
all persons under its jurisdiction, whether or not they take advantage of its televisions, cell phones, and every other type of consumer electronic.
services. Private entrepreneurs, on the other hand, cannot resort to such Though there may be a disparity in services present in the market, the
jackboot tactics; they would have to persuade potential clients to pay tendency will be for all levels of services to increase in quality and to
through the art of sales and influence. In addition, the option of online decrease in price. This is the beauty of unhampered markets; they transform
classes may become prevalent as they are highly effective and relatively
inexpensive, if not completely free. Bountiful, free, online educational 134 “The classical factory of the early days of the Industrial Revolution was the cotton
resources already exist such as Wikipedia, Code Academy, and the Mises mill. Now, the cotton goods it turned out were not something the rich were asking
Institute. With the advent of the Internet and digital learning, even the most for. These wealthy people clung to silk, linen, and cambric. Whenever the factory
esoteric topics may be accessible to virtually everyone in the world. In 2014, with its methods of mass production by means of power-driven machines invaded a
new branch of production, it started with the production of cheap goods for the broad
one may enroll in a Bachelor degree's worth of courses entirely for free masses.” Mises, "Work and Wages," in Human Action, 616. See also, Deirdre N.
from MIT, Stanford, and numerous other prestigious institutions which McCloskey, The Bourgeois Virtues: Ethics for an Age of Commerce (Chicago:
University of Chicago, 2006).
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goods only the wealthy can afford today into goods owned by virtually lose market share to those firms which displayed prominently their fitness
everyone tomorrow. on standardized grounds. In addition, third party organizations which
Finally, various educational institutions may be more than happy to specialize in evaluating and comparing different schooling institutions,
recruit bright students that are financially lacking. Schools operating in a companies, textbook providers, lesson plans, and projects would flourish.
marketplace have the incentive to acquire as many bright students as Without the State enforcing its own arbitrary metrics, watch-dog
possible so as to appear more attractive to a slew of financially-able parents organizations would arise to take over the role instantly. In higher
and guardians. The poor, yet bright, student would benefit by gaining access education, the process of accreditation has been a largely private function
to high-quality facilities and teaching faculty and the school would profit by for hundreds of years (though this too is being swallowed by the vanity of
being able to more effectively solicit its services as a training ground for State oversight). Judith Eaton outlines the history and nature of
inquisitive minds. Naturally, schools of every variety face this incentive. Art accreditation:
schools want talented art students, vocational schools want technically
gifted individuals, etc. Smith highlights how the restriction of private Accreditation is a creation of colleges and
education hurts precisely those for whom public education was intended to universities that dates back more than a
benefit: century. Its fundamental purposes are
quality assurance and quality
The poor and middle class are most improvement in higher education. A
injured by the lack of innovation that process of self-regulation through peer
results from government monopoly on and professional review, it is the oldest
education, as they are without the means such system in the world. Today more
to pursue the artificially limited supply of than seven thousand colleges and
private education available. Instead, their universities and more than twenty
children are forced to attend under- thousand programs serving some twenty-
performing public schools that often have four million students willingly undergo
little regard for the unique faculties of periodic accreditation review by nineteen
individual students. It is likely that the institutional accreditors and sixty-one
generalized education imposed on them programmatic accreditors. Accreditation
will do nothing but retard their is nongovernmental by design and relies
development, suppress their talent, and on funding from colleges, universities,
instill in them a permanent disdain for and programs (some $92 million in 2007,
learning.135 according to the Council for Higher
Education Accreditation, of which I am
president). Accreditation depends heavily
On Standards on volunteers from higher education who
participate in self-studies, serve as peer
and professional reviewers, and serve on
Standards in any industry are important, as standards allow for the accrediting organizations’ decision-
comparison of performance and the evaluation of service. It is precisely making bodies.136
because some form of standards would be desired that the market will
produce them. For example, entrepreneurs may want to advertise the As in anything else, there will be competition in the field of
average test scores of their school and how they compare to the providing standards and other metrics for these institutions. Particular third
competition as a selling point. Any educational institution which did not party evaluation companies will gain reputation over time based on how
offer a reference point by which to compare its services with others would
136 Judith S. Eaton, "Accreditation and the Federal Future of Higher Education"
(editorial published at American Association of University Professors, September-
135 Smith, ibid. October, 2010).
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effective they can measure aptitude and quality. If employers tend to, on the
whole, favor metrics from company A to company B, then more
educational institutions will be compelled to subject themselves to the
standards set by company A. Of course, different metrics may be offered
for different types of schooling, however, the process of market selection
will remain the same. Those standards which never garner popularity will
Chapter Twelve
fade away and the practices of the more successful metrics will be copied
and improved upon by others. The resulting metrics will have been driven POVERTY
by individuals in the market, and not by the arbitrary caprice of politicians
and bureaucrats. Such standards, being products of the market, would be
perpetually and accurately modified in accordance with the vicissitudes of IT IS OFTEN asserted that, in a free market, the rich get richer at the
consumer preference. expense of the poor growing ever poorer. It is true that most decent human
Though the tool of education is largely under State control, it is beings believe everyone should have access to basic education, healthcare,
also the key to our salvation. Instilling in our children and in our peers the food, and shelter. However, the overwhelming majority remains convinced
virtues of peace, critical thought, logic, and empathy will enable them to that it is only through the State that such complex social issues may be
break free from the mental shackles of the State. State power is, in the end, sufficiently remedied. It is widely believed that without the State compelling
rooted in the sanction of its subjects. Free minds who question their its subjects to contribute to the "common good," there would be
training will ultimately reject the conditioning of their State handlers. As in insufficient aid available for those in need. In addition to providing for the
other industries, freed markets in education are defined by the capacity to common good, many believe the State is necessary for protection against
privately own or employ all scarce goods – including capital, land, buildings, the predation of the wealthy and elite.
materials – and to organize them on consensual grounds. This paradigm Contrary to this picture, however, Statist measures used to "fight
substantially and sustainably promotes innovation, peace, cooperation, poverty" tend to result in its exacerbation. What separates the State from its
wealth, and an overall greater standard of living. It accomplishes this by market counterpart is its power to limit freedom of contract, coercively
enabling participants to measure and compare their business ventures redistribute wealth, and to impose rules on how its subjects may employ
through market prices, and by aligning their personal interests in accruing their property regardless of their consent: That is, the State imposes rules
wealth and influence with the interests of greater society. The State is above and beyond restricting us from using aggression against the persons
simply the inverse; through its commands and dictates, it destroys the or property of others. Unfortunately, exercising such powers deters others
capacity for critical thinking and free expression. It seeks to create identical from trading, producing, and maintaining the value and integrity of their
subjects, like goods on a mass production line, obedient to established property. This deterrence manifests as a decrease in overall wealth and
authority, deferential to “the rules,” controlled by bells and punch clocks, standard of living. Logically, this may be confirmed by reflecting on the
and ultimately unable to discover the barbaric nature of their master. nature of human action within the context of economic relationships. For
one to contract, trade, or deliberately do anything is to indicate that he
believes this action will transform his current state of affairs into one more
desired. Consequently, insofar as one's non-aggressive behavior is artificially
restricted, the potential value of his actions will be diminished. One need
only extrapolate this fact to a market wide scale to realize State regulations
prevent millions of valuable trades from coming into existence.
Unlike agents of the State, private actors are not subject to such
economic folly with the management of their own property, because they
have the ability and greater incentive to maintain its value and to produce
desired goods/services. The ability stems from having direct access to
market prices which themselves are generated through the voluntary
exchange of goods/services, and the incentive from the fact that it is only
through their production that they may accrue wealth. The beauty of the
free market is that every transaction results in mutual benefit, increasing the
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wealth of each person involved. regarding his property). Thus, any

In the absence of clear and consistent property norms, significant deviation from these rules also implies
obstacles to economic planning or investing would arise due to the lack of reduced levels of value productive efforts
criteria for rationally arbitrating between mutually exclusive desires on how at all times.138
to employ scarce resources. Interpersonal conflict would abound in such an
environment at the expense of time, energy, and resources, which may have Thus, the true obstacles to wealth generation are the entities which
otherwise been employed for economic production and cooperation. The attempt to artificially regulate the use of economic goods for which they
question then becomes "what rules or norms are best suited for mitigating themselves have no just claim. The State is a prime example of just that: an
such interpersonal conflict?" It is the contention of this work that the institution which asserts control over economic goods that its agents never
private property norm, whereby economic goods may only be acquired via acquired through original appropriation or voluntary exchange.
original appropriation or voluntary exchange, is the one best suited for this With such an institution in place, the alleged atrocities of the free
end. Consequently, adhering to this norm leads to the greatest production market are now able to come to fruition under a Statist framework. The
of wealth.137 Hoppe expands on this: rich are now able to become richer at the expense of everyone else. They may
accomplish this by persuading the State's agents to erect artificial barriers to
The reason this institution [the entry into various industries in the form of taxes, intellectual property laws,
Libertarian/Private Property Ethic] leads minimum wage laws, occupational licensures, etc. These barriers are then
to the greatest possible production of sold to the public as protections for the consumer and the employee.
wealth is straightforward. Any deviation Tragically, this could not be further from the truth. Such barriers only
from this set of rules implies, by benefit the State and the businessmen who beckon for them while limiting
definition, a redistribution of property the temperance provided by market competition. This perversion
titles (and hence of income) away from undermines the market's ability to sustainably generate wealth and a
user-producers and contractors of goods destructive cycle ensues:
and onto non-user-producers and non-
contractors. As a consequence, any such 1) State intervention destroys and/or hinders the production of
deviation implies that there will be wealth
relatively less original appropriation of 2) The resulting economic woes are attributed to an "under-regulated"
resources whose scarcity is realized, there market
will be less production of new goods, less 3) The State increases the scope and degree of its interventions
maintenance of existing goods, and less 4) Steps one through three are repeated until the economy falls to
mutually beneficial contracting and ruin
trading. This naturally implies a lower
standard of living in terms of Fortunately, this cycle is not inevitable; it merely reflects past
exchangeable goods and services. Further, tendencies. With all this in mind, the best solution to poverty becomes quite
the provision that only the physical clear: allow the market to operate unimpeded. This entails the widespread
integrity of property (not property values) recognition and respect for private property rights. Thus, to reach the point
be protected guarantees that every owner where this solution may be feasible, we will first demonstrate how the free
will undertake the greatest possible value- market is in fact the cure for destitution, and not its cause. Before examining
productive efforts, i.e., efforts to promote how things can go wrong, let us, as Hayek suggests, examine how things
favorable changes in property values and should ever go right.
to prevent or counter any unfavorable In a truly free market, resources flow to their most value-
changes in property values (as they might productive ends. This occurs in a decentralized process with each individual
result from another person’s actions simply doing that which he believes will yield him the greatest satisfaction.

137 For an elaborated proof, see Chapter 1: Libertarianism 138 Hoppe, “The Justice of Economic Efficiency,” in Private Property, 332.
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This pursuit of satisfaction/profit will motivate actors to minimize their through the collecting of taxes. Despite this fact, however, the State is still
costs and maximize their benefits. They are also able to evaluate the costs predominately held as the single institution capable of competently
of various actions by comparing market prices which themselves are protecting private property rights. This blatant paradox may only be
byproducts of voluntary exchange. The advent of money enables this perpetuated through incessant propaganda. For the few who do reflect
process to be even more efficient by providing the actor with quantitative upon this clear contradiction, they generally respond by appealing to the
figures by which he may be able to compare the costs of heterogeneous or equally paradoxical "necessary evil" argument. Partiality to tradition has
different types of goods/services directly. The use of money allows for a indeed stunted reason for the time being, however it is the mission of truth
common denominator by which an actor can compare his opportunity seekers to confidently beat the drums of reason until they may no longer be
costs more easily than he can in barter. He then compares the costs of his ignored.
chosen endeavor with the gain in satisfaction he projects he will receive in In addition to its purely criminal nature, taxation also hinders the
its execution. If his projected gain exceeds the costs of his project, then he production of wealth. The funds taken by taxes do not reflect consumer
may conclude it to be a profitable one. However, being merely profitable is demand for a given good or service, but rather are the result of violent
not sufficient in itself; the task must be profitable enough to warrant the time confiscation. This mass expropriation of wealth nonetheless affects market
and energy he puts into it versus any other action he could have taken. Our prices as the purchasing decisions of market participants will be altered due
actor determines this by evaluating other courses of action he may take, and to smaller money balances. Moreover, the State will spend these
how profitable he thinks they will be. For instance, if he makes one expropriated funds in a manner wholly divergent from their unfettered
thousand shoes and only receives five dollars in monetary profit, he may see market allocation. As such, and insofar as this State interference extends,
this as an ultimate loss as he may value the time it took to make the shoes the capacity for prices to reflect genuine consumer demand for various
more than he values five dollars. (Important to keep in mind is that profit economic goods will be undermined. These price distortions then result in
or satisfaction may be of a psychic nature, instead of purely a monetary one. less efficient economic activity as the information-guiding role prices once
Subjective desires are the ultimate cause of man's actions, and it would be conveyed has been tainted by violent redistributions of wealth on a mass
incorrect to presume man is guided solely by money.) scale. This destructive process culminates in an underproduction of some
This process is then repeated by himself and all other market goods/services and overproduction of others relative to an otherwise free
participants until large, sustainable trading networks and markets form. As market yield. Hoppe brilliantly sums up the economic effects of taxation:
these market participants bid for various resources, their prices begin to
reflect their demand in relation to their supply. The resulting prices of One last remark on the economic effects
goods in turn influence the individuals' evaluations of these goods and the of taxation: Every tax is a redistribution of
profitability of their projects, which in turn causes them to modify their wealth and income. Wealth and income is
behavior accordingly. Through this fluid and organic cycle, an incredibly forcibly taken from their owners and
efficient economy emerges through the mere acts of individual actors producers and transferred to people who
peacefully pursuing their own self-interest. Market prices serve as their did not own this wealth and did not
guides; potential value opportunities and desire for profit serve as their produce this income. The future
motivation. accumulation of wealth and the
production of income are thus
discouraged and the confiscation and
Taxation consumption of existing wealth and
income is encouraged. As a result, society
will be poorer. And as for the effect of
Perhaps the most notorious tool of the State is its ability to lay the eternally popular, egalitarian proposal
taxes. Do not be fooled by the seemingly innocuous wording of "laying of taxing the “rich” to give to the “poor”
taxes," this phrasing simply serves as a belittling euphemism for theft on a in particular: Such a scheme does not
mass scale. If taxes were voluntary, they would instead be considered reduce or alleviate poverty but, quite to
"donations" or payments. It is important to consider that before the State is the contrary, it increases poverty. It reduces
able to do anything, it must first violate the property rights of its citizens the incentive to stay or become rich and

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be productive, and it increases the the same or similar levels of input. As workers are able to produce more
incentive to stay or become poor and be with the same level of input, the employer is both able and incentivized to
unproductive.139 pay them higher wages or to provide more satisfactory working conditions,
lest his competitor draw away his labor by implementing said measures at
his place of business.
Working Conditions Conversely, an employer cannot be reasonably expected to pay his
employees more than he projects their labor will produce, for to do so
would be to deliberately generate losses. Thus, even if a noble intentioned
Like all other services in the free market economy, the price of employer decided to pay his employees a "living wage" of $20/hour despite
labor is determined by the subjective valuations of those looking to hire the fact that their labor only brings in $15/hour of revenue, he would
labor along with its corresponding availability. Thus, contrary to the eventually go bankrupt and his resources freed up to be used more
popular narrative that people are slaves to the terms on which a given efficiently by those who did not engage in such wasteful practices.
employer may be willing to hire them, the employers themselves are subject
to concrete economic incentives not to short change employees either on
the basis of wages or working conditions. Such incentives are due to Industrial Revolution
competition between employers for labor, just as there is competition
between prospective employees for jobs. If employer A offers wages or
working conditions that are substantially less appealing than what employer One may concede that the preceding analysis sounds good in
B offers, then the most productive labor will tend to be allocated to theory, but in practice has yet to be the case! The industrial revolution and
employer B whilst employer A is left with the less productive leftovers. the infamous working conditions associated with it are generally cited as
Because employer B's labor would be more productive, he would be able to damning evidence against the capitalism-as-free-trade theory. However, this
afford to pay his employees more, provide them with better working assessment is generally marred by mistakenly comparing those working
conditions, and/or sell his goods at lower prices than the miserly employer conditions with the ones enjoyed today, as opposed to comparing them
A. Such a situation will eventually lead to employer A's bankruptcy if he with previously existing alternatives. The fact that workers in the industrial
does not offer better working conditions or higher wage rates. A common revolution chose to work at the factories logically indicates that such
response to this explanation is to say, "There are too few options available conditions were preferable to the available alternatives.
for this competitive mechanism to work!" First of all, what constitutes The free market is not claimed to be a Utopian environment where
successful "working" in this context is completely subjective. Someone everything is always cheap and abundant and where work is always pleasant
choosing to work at company A is an indication that he would rather work and enjoyable. Rather it is only claimed that instituting a free market will
there than work somewhere else or not at all. Thus, this is still a mutually perpetually improve upon current economic conditions. So, if working
beneficial relationship, and in fact from the perspective of the employee conditions start off as terrible and improve to "bad," then this is an
and the employer, it’s the most beneficial arrangement relative to the improvement despite it not being ideal. Working conditions today are much
available known alternatives. Mainstream economics promotes the fallacy improved not due to legislation, but rather to the increase of the marginal
that the number of firms is what demonstrates “monopoly,” but so long as productivity of labor brought on by the accumulation of capital and the
entry into the field is permitted, this can create competitive results. development of more productive technology. It is true that the passing of
Potential competition can act as real competition. The free market is one in "pro labor" legislation coincided with improvements in working conditions,
which competition is able to most abundantly thrive as it is defined as the however so too did the accumulation of capital and development of
lack of aggressive barriers to entry into any given industry. technology, which allowed workers to be more productive. Hence, the State
The tendency of the free market economy is to develop technology conveniently took credit for improved working conditions while it was
and machinery which enables each individual to produce more output with indeed the Capitalist who was responsible for making such improvements
sustainable and permanent. Mises cogently remarks:
139 Hans-Hermann Hoppe, "Interview on Taxation" (interview by Nicolas Cori of
Philosophe Magazine, March 10, 2011)
<[Link] The history of capitalism in Great Britain
taxation/>.
216 217
 A SPONTANEOUS ORDER POVERTY

as well as in all other capitalist countries is the present conditions of the industrial
a record of an unceasing tendency toward masses. Hours of work were long, the
the improvement in the wage earners' sanitary conditions in the workshops
standard of living. This evolution deplorable. The individual's capacity to
coincided with the development of work was used up rapidly. But the fact
prolabor legislation and the spread of labor remains that for the surplus population,
unionism on the one hand and with the which the enclosure movement had
increase in the marginal productivity of reduced to dire wretchedness and for
labor on the other hand. The economists which there was literally no room left in
assert that the improvement in the the frame of the prevailing system of
workers' material conditions is due to the production, work in the factories was
increase in the per capita quota of capital salvation. These people thronged into the
invested and the technological plants for no reason other than the urge
achievements that the employment of this to improve their standard of living.141
additional capital brought about. As far as
labor legislation and union pressure did Mises then concludes his argument by comparing the conditions that
not exceed the limits of what the workers existed prior to the Industrial Revolution with those that existed after its
would have got without them as a inception:
necessary consequence of the acceleration
of capital accumulation as compared with The factory owners did not have the
population, they were superfluous. As far power to compel anybody to take a
as they exceeded these limits, they were factory job. They could only hire people
harmful to the interests of the masses. who were ready to work for the wages
They delayed the accumulation of capital offered to them. Low as these wage rates
thus slowing down the tendency toward a were, they were nonetheless much more
rise in the marginal productivity of labor than these paupers could earn in any
and in wage rates. They conferred other field open to them. It is a distortion
privileges on some groups of wage earners of facts to say that the factories carried
at the expense of other groups. They off the housewives from the nurseries and
created mass unemployment and decreased the kitchens and the children from their
the amount of products available for the play. These women had nothing to cook
workers in their capacity as consumers.140 with and to feed their children. These
children were destitute and starving. Their
only refuge was the factory. It saved
In reference to the horrid working conditions that existed during the them, in the strict sense of the term, from
Industrial Revolution, Mises stated: death by starvation.

In the first decades of the Industrial It is deplorable that such conditions

Revolution, the standard of living of the existed. But if one wants to blame those
factory workers was shockingly bad when responsible, one must not blame the
compared with the contemporary factory owners who — driven by
conditions of the upper classes and with selfishness, of course, and not by

140 Mises, “Work and Wages,” in Human Action, 622. 141 Mises, ibid, 620.
218 219
 A SPONTANEOUS ORDER POVERTY

"altruism" — did all they could to either a neutral or negative impact on the economy. The negative
eradicate the evils. What had caused these consequences of passing such legislation prior to economic conditions
evils was the economic order of the pre- organically improving include unemployment and the diversion of labor to
capitalistic era, the order of the 'good old less desirable ends. Prohibiting an activity does not necessarily stop
days.'142 everyone from performing it; it simply increases the costs of doing so. This
increases the risks and harm undergone by people in situations desperate
enough to persist despite a formal legal ban. The unintended consequences
Child Labor of prohibiting child labor are briefly outlined by Thomas Dilorenzo:

Capitalistic competition is also why 'child

The next common concern is that of child labor. "Do we as a labor' has all but disappeared, despite
society really want to allow children to be taken from their studies to work a unionist claims to the contrary. Young
tedious job at a factory?" The answer is simply no. However, most people people originally left the farms to work in
want even less to starve. Virtually all parents, if given the practical choice, harsh factory conditions because it was a
would not have their children work. This is evidenced by the relationship matter of survival for them and their
between family income and child labor as depicted by Benjamin Powell: families. But as workers became better
paid – thanks to capital investment and
Take child labor for example. Anti- subsequent productivity improvements –
sweatshop groups universally condemn more and more people could afford to
child labor and call for laws banning keep their children at home and in school.
products made with it. But the process of Union-backed legislation prohibiting child
development is the best cure for child labor came after the decline in child labor
labor. In countries with average incomes had already begun. Moreover, child labor
above $12,000, there is virtually no child laws have always been protectionist and
labor. But for countries whose incomes aimed at depriving young people of the
are below $2,000, more than 30 percent opportunity to work. Since child labor
of children work. sometimes competes with unionized
labor, unions have long sought to use the
... It’s no accident that the United States power of the state to deprive young
didn’t pass meaningful national child people of the right to work. In the Third
labor legislation prohibitions until 1938. World today, the alternative to "child
At that time, average per capita income labor" is all too often begging,
was more than $10,000 (in 2010 dollars). prostitution, crime, or starvation. Unions
It was simply codifying what the market absurdly proclaim to be taking the moral
process had already achieved. The same is high road by advocating protectionist
true of other workplace health, safety, and policies that inevitably lead to these
maximum hour legislation in countries consequences.144
with sweatshops today.143

Once more, we reach the conclusion that State intervention has

142 Mises, ibid.

143 Benjamin Powell, "Sweatshops: A Way Out of Poverty" (interview by Ludwig Von 144 Thomas J. DiLorenzo, "Markets, Not Unions, Gave Us Leisure" (editorial published
Mises Institute, March 2014). <[Link] at Ludwig Von Mises Institute. Ludwig Von Mises Institute, Auburn, Alabama,
Out-of-Poverty>. August 23, 2004). <[Link]
220 221
 A SPONTANEOUS ORDER POVERTY

Sweat Shops working conditions.145

The economic analysis of sweatshops is the same of any other Wage Labor
voluntary labor arrangement. Insofar as the conditions for labor are
artificially regulated, the level of available attractive work will decrease. The
fact that people choose to work for these institutions demonstrate they A common Marxist critique of the employer-employee arrangement
value working at them more than not working at all. Competition between is that wage laborers are exploited by being paid less than what they
all industries in which one can be employed, will create a lower limit to the produce. Such critics claim the leftover surplus is then used to line the
level of wages and working conditions he will accept for his labor. The pockets of the evil capitalist in the form of profits. However, this criticism
existence of sweatshops merely indicates that the surrounding market is fails to recognize the existence of choice in the matter! The employee does
relatively undeveloped. Benjamin Powell comments on the developmental not have to work for the employer. If he wants, he may start his own
advantages provided by sweatshops: business. If he does not have the capital or the will to do this, then he can
choose to work for a cooperative. Any voluntary alternative is compatible
In fact, sweatshop earnings even with the free market. Thus, when someone chooses to work for an hourly
compared favorably to the average wage in the free market, nothing inherently exploitative is occurring.
incomes in the countries where they were This analysis may seem simple and obvious, but it eludes even the
located. In six of the 17 countries, the more renowned economists. Employees who decide to work for a wage are
average reported sweatshop wage demonstrating that they prefer the security a fixed wage brings as well as the
exceeded the average income in the immediacy of its payout to the comparatively lesser degree of certainty
country — in Haiti, Honduras, and associated with entrepreneurship and variable payout. The business owner's
Nicaragua it was more than twice the salary is completely contingent upon the whims of his customers, and he
national average. In another six countries, has no guarantee whatsoever that they will purchase the goods and services
the average reported sweatshop wages he offers. It is true that if a business goes under, then the employee will go
were around the national average. In four unpaid as well. The difference here, however is the employer is
of the five countries where sweatshop contractually obliged to pay the employee while customers have no such
wages were 50 percent below the national contractual obligation to patronize the services offered by an entrepreneur.
average, the workers were immigrants Thus, all other things being equal, there is more certainty regarding ones'
(sometimes illegal) from other countries pay in his capacity as an employee than there is in his capacity as an
and their sweatshop wages exceeded the entrepreneur. The role of the entrepreneur is to bear uncertainty, and
average wage in their native country. profits are the income he earns for executing that role. Therefore, the
reaping of the “surplus profit” of the employee's labor for the entrepreneur
In short, sweatshops provide the least- is justified by his willingness to incur greater risks and forego consumption
bad option for the workers who work in for a date later than what his employees are willing. The employer and
them. But sweatshops are better than just employee have reverse time preference orderings, thus their dealings with
the least-bad option. Sweatshops bring one another results in mutual benefit.146
with them the proximate causes of The entrepreneur is essentially being rewarded for his ability to
economic development — capital, make profitable projections and to efficiently manage the capital at his
technology, and the opportunity to build disposal. He is a coordinator and a pioneer, whose livelihood is to create
human capital. If countries respect private goods which are valued more highly than the sum of their individual parts.
property rights and economic freedoms, The role entrepreneurship plays in the free market is perhaps the most
these proximate causes of development critical. It is the entrepreneur that decides to acquire or not acquire more
lead to higher productivity, which
eventually leads to higher pay and better 145 Powell, “Sweatshops: A Way Out of Poverty.”
146 Hoppe, “Marxist and Austrian Class Analysis,” in Private Property, 121-123.
222 223
 A SPONTANEOUS ORDER POVERTY

capital goods, it is the entrepreneur that introduces and makes accessible laborer? Why would he want to advance
previously unheard of products and services, and it is the entrepreneur who present goods (money) to the laborer in
lives closest to the mercy of the consumer. exchange for services that bear fruit only
Entrepreneurship is carried out for personal gain, but those who later? Obviously, he would not want to
succeed at it should nonetheless be touted as heroes of mankind. The pay out, for instance, $100 now if he were
notion that one may best serve society only by depriving himself is to receive the same amount in one year's
vanquished by understanding that the greatest humanitarian contributions time. In that case, why not simply hold on
have come from the foresight of entrepreneurs seeking to help themselves to it for one year and receive the extra
by helping others. Without aggression, self-interest is channeled into socially benefit of having actual command over it
beneficial, profit-earning enterprises. Self-interest and profits are therefore during the entire time? Instead, he must
nothing to be ashamed of; they should instead be embraced as an integral expect to receive a larger sum than $100
motivating characteristic of human nature. Technically, one is precluded in the future in order to give up $100 now
from even being able to conduct a truly altruistic act. If one does not intend in the form of wages paid to the laborer.
to receive monetary gain from some form of action, then he is seeking He must expect to be able to earn a
psychic gain in its stead. Actions are always undertaken with the goal of profit, or more correctly an interest
alleviating the actor's uneasiness. In fact, the claim that all action is self- return. He is also constrained by time
interested is a tautology. preference, i.e., the fact that an actor
Being subject to aggression strongly increases the likelihood that invariably prefers earlier over later goods,
one may fail to profit from an action or exchange. Thus, any attempt to in yet another way. For if one can obtain
vanquish wage labor or any other voluntary contractual relationship must a larger sum in the future by sacrificing a
necessarily displace otherwise profitable behavior. Hoppe responds to the smaller one in the present, why then is the
Marxist critique of wage labor: capitalist not engaged in more saving than
he actually is? Why does he not hire more
laborers than he does, if each one of them
What is wrong with this [Marxist] promises an additional interest return?
analysis? The answer becomes obvious, The answer again should be obvious:
once it is asked why the laborer would because the capitalist is a consumer, as
possibly agree to such a deal! He agrees well, and cannot help being one. The
because his wage payment represents amount of his savings and investing is
present goods-while his own labor restricted by the necessity that he, too,
services represent only future goods-and like the laborer, requires a supply of
he values present goods more highly. present goods large enough to secure the
After all, he could also decide not to sell satisfaction of all those wants whose
his labor services to the capitalist and current enjoyment is considered more
then map the full value of his output urgent than the advantages which a still
himself. But this would of course imply greater lengthening of the period of
that he would have to wait longer for any production would provide."147
consumption goods to become available
to him. In selling his labor services he
demonstrates that he prefers a smaller
amount of consumption goods now over
a possibly larger one at some future date.
On the other hand, why would the
capitalist want to strike a deal with the
147 Hoppe, ibid.
224 225
 A SPONTANEOUS ORDER POVERTY

employees to competitors. Thus, minimum wage laws destroy jobs which

Minimum Wage can only be feasibly compensated at a rate below the minimum wage.
Murray Rothbard sums this up:

The argument against the minimum wage is fairly simple and In truth, there is only one way to regard a
straightforward, so this analysis will be brief. Minimum wage laws do not minimum wage law: it is compulsory
alter the fact that employers cannot sustainably pay their employees more unemployment, period. The law says: it is
than they produce. The existence of competitive pressures, as mentioned illegal, and therefore criminal, for anyone
earlier, will have already created a tendency where laborers earn nearly what to hire anyone else below the level of X
they produce. Thus, a minimum wage law will tend to create unemployment dollars an hour. This means, plainly and
in fields whose market wages are lower than what is mandated by the new simply, that a large number of free and
law. Minimum wage laws thus amount to removing the bottom rungs of the voluntary wage contracts are now
economic ladder. One unintended consequence of minimum wage laws is outlawed and hence that there will be a
that the resulting unemployment is mostly shouldered by the young, large amount of unemployment.
unskilled persons, and ethnic minorities.148 Tragically, the consequence of Remember that the minimum wage law
this policy tends to most negatively impact the very people it was provides no jobs; it only outlaws them;
"supposed" to help. The industries under the burden of this law will then and outlawed jobs are the inevitable result.
face choices: they either have to lay off workers, increase all the “illegal”
wages to be in compliance at their own expense, or raise the prices of the … If the minimum wage is, in short,
goods and services they offer. Any choice or combination among these raised from $3.35 to $4.55 an hour, the
negatively impacts, not only the standard of living for the patrons of these consequence is to disemploy,
services, but the economy as a whole. As goods are made more expensive, permanently, those who would have been
consumers and their trading networks will have comparatively less money hired at rates in between these two rates.
left over for other things. Since the demand curve for any sort of
Critics who argue from the basis of statistics which reveal no labor (as for any factor of production) is
increase in unemployment after such minimum wage laws were passed are set by the perceived marginal productivity
making a logically deficient argument. They are simply not accounting for of that labor, this means that the people
other factors such as: a corresponding decrease in the overall tax/regulatory who will be disemployed and devastated
burden, an increase in the marginal productivity of labor due to by this prohibition will be precisely the
accumulation of capital, which makes labor more valuable, the fact that the "marginal" (lowest wage) workers, e.g.
rate of decline in the unemployment rate may have been lessened or blacks and teenagers, the very workers
stagnated due to this law, etc. These critics fail to understand “ceteris whom the advocates of the minimum
paribus” (i.e. other things equal) – that existence of economic law is prior to wage are claiming to foster and protect.
interpretation of data. In other words, that minimum wage laws must either
have either a negative or neutral impact on the economy must logically The advocates of the minimum wage and
follow from the nature of price floors. If one were to analyze two cases, its periodic boosting reply that all this is
identical in all respects save for one enacting a compulsory minimum wage scare talk and that minimum wage rates
law, the one where such a law is present will almost certainly generate do not and never have caused any
greater unemployment than the one without (it could be the same level, unemployment. The proper riposte is to
though this is unlikely as wages will already nearly match the productivity of raise them one better; all right, if the
laborers for reasons outlined above). As the productivity of workers minimum wage is such a wonderful anti-
increases, so too will their wages lest their employers lose valuable poverty measure, and can have no
unemployment-raising effects, why are
you such pikers? Why you are helping the
148 Walter E. Williams, The State Against Blacks (New York: New Press, 1982).
226 227
 A SPONTANEOUS ORDER POVERTY

working poor by such piddling amounts? sell their labor to these firms, selling less
Why stop at $4.55 an hour? Why not $10 for low wages and more for high wages.
an hour? $100? $1,000?149 Through the interaction of buyers and
sellers of labor, labor markets tend to
clear, coordinating the movement of labor
Labor Unions inputs in the production process.

The rise of unionism, on its own, would

In a free market, there is absolutely no reason why voluntary labor normally pose no threat to labor markets’
unions could not form. In fact, they may even serve as an effective coordinating tendencies. Any group of
incentive for various employers to maintain satisfactory wages and working workers would be free to organize and
conditions for their employees. Organized strikes and collective bargaining demand higher wages in exchange for
does not entail any activity which is inherently at odds with the principles of labor. Firms would be free to pay those
private property or maintaining free markets. Issues arise when unions wages—or not. If some workers held
embrace the utilization of State power to further their agenda. One way this monopoly power in the supply of their
is done is by funding the political campaigns of various congressional or labor—which could be the case if they
presidential candidates on the condition that, when in office, they pass had unique skills that were especially
legislation which furthers the given unions' cause, at the expense and valued by firms—then firms may very
against the wishes of their respective employers. This is antithetical to free well choose to pay higher wages. In a
markets, as such legislation constitutes aggression against business owners competitive labor market, these workers’
and their property. As explained above, such aggressive intervention only success at earning higher wages would
serves to destroy wealth on the net to the benefit of a select, privileged few. also sow the seeds for their eventual
Aggressive labor intervention can be seen when unions require prospective reduction, as the higher wages would
employees to join their ranks as a precondition of their employment. If an signal other workers to obtain the skills
employee wants to work for an employer and the employer is willing to hire necessary for their lines of work too. This
the prospective employee, then no outside individual or organization should benign case of unionism becomes
have the right to forcibly impose any further stipulations on this destructive, however, when these workers
arrangement. It becomes clear that mandating union membership and receive protection from the government.
payments of dues conflicts with the rights of both parties to voluntarily This introduces violence into what
contract with one another. Like all other rights violations, the source of otherwise would have been peaceful,
such unjustified behavior may be traced back to aggression against one’s voluntary exchanges of labor between
person or property. Christopher Westley comments on the destructive buyers and sellers. Make no mistake:
Labor Union-State relationship: absent the state, any success that
organized labor might have in obtaining
In the same way, labor unionism, when higher wages, and thus increasing the
state supported, removes workers from costs of production, would be short-lived.
the normal coordinating mechanisms With government comes the introduction
found in labor markets. These markets of force in the relationship between labor
operate like any other market for scarce producers and consumers, either directly
resources. Firms demand labor and pay (such as when authorities jail unanointed
wages for it, demanding more at lower nonunion laborers for working in
wages and less at higher wages. Workers unionized industries) or indirectly (such as
when union violence occurs, as allowed
149 Murray N. Rothbard. "Outlawing Jobs, the Minimum Wage, Once More" in Making by the Norris-La Guardia Act of 1932).150
Economic Sense (Auburn: Ludwig Von Mises Institute, 1995), 133-35.
228 229
 A SPONTANEOUS ORDER POVERTY

percentage of contributions actually reach their intended recipients.

Statistics are available which compare CEO salary, percentage of donations
Private Relief used effectively, etc. Competition between these various metrics drives
charities to find ways to increase their impact per dollar and incentivizes
them to discover new ways to minimize administrative costs so that a
The working class has been discussed, but what about the truly growing portion of their received contributions reach those in need. The
indigent? What about the unemployed and homeless? The first point worth incentives of the State are starkly contrasted with this, as the funds it uses
mentioning is that in a truly free society, one's reputation is intimately for such programs are generated through compulsion, i.e., taxes. Because
linked with his livelihood. For instance, if a given person is habitually income for these State welfare programs is not generated by consumers
belligerent, rude, violent, and obnoxious, then he may find himself relatively enjoying their service and voluntarily patronizing the anti-poverty measures,
alone and with few friends or family to help him in times of need. The they are funded regardless of their efficacy. Thus, the State's only incentive
prospect of solitude and personal autarky serves as a peaceful incentive for is to make token efforts towards helping the poor, while actually
someone to develop himself as an asset to others whether in a social or an minimizing their productive output.151 For the State, it is a win-win situation
economic capacity. There would also exist substantially more wealth in a if its efforts coincide with a shrinking of the impoverished, it will usurp
free market society than in a society governed by a State. Thus, for an more revenue for this end as it has “proven” to be a successful program!"
individual to get to the point where he would have no access to help, jobs, The State will capture more tax revenue from an increasingly wealthier
friends, family, churches, or other charitable organizations would likely society. If, on the other hand, the poor class expands, it will yet again seek
mean that he had conducted himself in an extremely notorious and/or anti- to increase its expenditures on the grounds that the programs in place are
social manner. In any case, concern for the poor is a prevailing one, and “clearly under-funded." The resulting moral hazard renders State welfare
therefore in a society where there is more wealth being generated, one may programs much less efficient than their private counterparts. For example,
conclude that there would also be a greater willingness to give towards in his essay "The Costs of Public Income Redistribution and Private
charitable causes. In addition to becoming wealthier, people have a stronger Charity," James Edwards reveals that only about 30% of government aid
incentive to give because they would be spared from the delusion that the reaches its intended destination, whereas the remaining 70% lines the
government is, to some extent, already taking care of the poor. The truth is pockets of government bureaucrats. In contrast, the inverse is true for
State agencies crowd out private charity and mutual aid. Tragically, the State private charities, where on average only about 30% of funds get absorbed
rarely "helps" the poor; it merely subsidizes them, thereby increasing their for administrative costs, and 70% reach the people in need.152
number. Prior to the growth of the Welfare State, voluntary and private
Having a poor, dependent class is, in fact, beneficial to the security mutual aid societies served as a social safety net for those in need. As
of State power. Insofar as people believe they cannot live without the State, opposed to relying on direct charity, they would operate under conditions
its longevity will be increased. Additionally, whenever the poorer classes of reciprocity, where all the members would contribute membership dues
grow under the regime of a State, the culprit is all too often thought to be a to collectively insure everyone while they were healthy and employed in the
lack of funding for welfare programs. In consequence, public support and event that they may need assistance themselves should they ever become
spending for the welfare State grows in concordance with the growing sick or unemployed. Social pressures and auditing mechanisms developed
parasitic class that organizes, regulates, and administers the benefits. Its to ensure that mutual aid societies were not being defrauded or exploited.
growth necessarily comes at the expense of taxpayers, which means there Unfortunately, the State effectively legislated them out of existence and
will be crowding out of private alternatives. By requiring payment into a ultimately displaced them with its own compulsory welfare system. Joshua
State program, individuals are discouraged from supporting private Fulton briefly describes mutual aid societies:
counterparts. The very presence of the welfare State, then, undermines and
displaces private charities which generally seek to empower the poor, so Mutual aid, also known as fraternalism,
that they may escape poverty and become productive members of society. refers to social organizations that
Even today, many private charities compete with one another on terms of
the degree of impact on their target demographics as well as what 151 Hoppe, “Rothbardian Ethics,” in Private Property, 391.
152 James Rolph Edwards, "The Cost of Public Income Redistribution and Private
150 Christopher Westley, "The End of Unions," in The Free Market 26: 9 (Sept. 2005): Charity," in Journal of Libertarian Studies Summer 21.2 (2007): 3-20.
9. <[Link]
230 231
 A SPONTANEOUS ORDER POVERTY

gathered dues and paid benefits to

members facing hardship. According to A free market society is one that is absent of any institutionalized
David Beito in From Mutual Aid to the aggression or legal privilege. This society allows all possible mutually
Welfare State, there was a "great stigma" beneficial exchanges between parties, and it therefore produces the greatest
attached to accepting government aid or amount of wealth. There are no artificial barriers to entry into any industry,
private charity during the late 18th and and one's income is completely contingent upon how competently he
early 19th centuries. Mutual aid, on the provides desired goods/services to others. This system harmonizes self-
other hand, did not carry the same stigma. interest with the interests and welfare of greater society. Every transaction
It was based on reciprocity: today's that takes place is of mutual benefit, and every loss that occurs frees up
mutual-aid recipient could be tomorrow's resources to be used for more efficient ends elsewhere. This system is
donor, and vice versa. organic and humanitarian. It grants each person involved the greatest
opportunity to transfer the contents of their imagination to the physical
… By the 1920s, at least one out of every realm. No voluntary association is prohibited nor is any idea patented or
three males was a member of a mutual-aid monopolized. This paradigm serves as a breeding ground for ingenuity,
society. Members of societies carried over prosperity, cooperation, and peace. As time progresses, the whole of society
$9 billion worth of life insurance by 1920. becomes more wealthy, despite the fact that some individuals may be more
During the same period, lodges so than others. The lack of regularized crime creates greater stability and
dominated the field of health insurance. motivation for everyone to save, allowing them to experience rapidly
Numerous lodges offered unemployment improving living standards. The absence of the State is not a lacking of
benefits. Some black fraternal lodges, governance or a social safety net, but rather the presence of a beautiful
taking note of the sporadic nature of spontaneous order whose efficacy and humanitarian output could never be
African-American employment at the paralleled by central fiat.
time, allowed members to receive
unemployment benefits even if they were The very principle of capitalist
up to six months behind in dues. entrepreneurship is to provide for the
common man. In his capacity as
… Mutual-aid societies also founded 71 consumer the common man is the
orphanages between 1890 and 1922, sovereign whose buying or abstention
almost all without government subsidy. from buying decides the fate of
Perhaps the largest of these was entrepreneurial activities. There is in the
Mooseheart, founded by the Loyal Order market economy no other means of
of Moose in 1913. Hundreds of children acquiring and preserving wealth than by
lived there at a time. It had a student supplying the masses in the best and
newspaper, two debate teams, three cheapest way with all the goods they ask
theatrical organizations, and a small radio for.154
station. The success of Mooseheart
alumni was remarkable. Alumni were four
times more likely than the general
population to have attended institutions
of higher learning. Male alumni earned 71
percent more than the national average, 153 Joshua Fulton, "Welfare before the Welfare State” (editorial published at Ludwig
and female alumni earned 63 percent
Von Mises Institute, Auburn, Alabama, June 21, 2011).
more.153 <[Link] See also, Beito, Mutual Aid to the Welfare State,
2000.
154 Mises, ibid, 621.
232 233
 ENVIRONMENTALISM

other things being equal, will tend to consume these goods more quickly.
Sally knows that for every slice of pizza and ounce of soda the rest of her
peers consume, there will be less pizza and soda for herself. Sally is not
alone in this understanding, however. Most of her peers are also aware of
Chapter Thirteen the opportunity costs of eating pizza and drinking soda at a leisurely rate.
The resulting effect is a classroom of kids who are now consuming their
treats at a much faster pace than they otherwise would have with regards to
ENVIRONMENTALISM their own individual servings. Tragically, this may also preclude many of
them from being able to enjoy the pizza and soda as much as they
otherwise would have. Ludwig Von Mises describes the tragedy of the
IT IS OFTEN thought that free enterprise is somehow at odds with commons by using the examples of publicly owned land and waters:
environmental preservation. That is to say, there is an argument that one
may only be able to profit financially through the consumption, depletion, If land is not owned by anybody,
and exhaustion of the Earth and its precious resources. This philosophy is although legal formalism may call it public
applied to the whole spectrum of environmental concerns ranging from property, it is utilized without any regard
atmospheric integrity to the preservation of the myriad of species in the to the disadvantages resulting. Those who
animal kingdom. The primary suspects for such poor stewardship of the are in a position to appropriate to
earth go by many names, but supposedly involve the same concepts: themselves the returns — lumber and
capitalism, money, profits, greed, industry, and private property itself. The game of the forests, fish of the water
consensus tends to be a beckoning for the State to regulate and temper areas, and mineral deposits of the subsoil
such environmentally-destructive free enterprise behavior through the — do not bother about the later effects
imposition of taxes, regulations, fees, licensure, and downright prohibitions. of their mode of exploitation. For them
It is thought only by superseding the property rights of others can the Earth the erosion of the soil, the depletion of
and its species be protected from the pursuit of our myopic and petty self- the exhaustible resources and other
interests. impairments of the future utilization are
Contrariwise, free enterprise and market activity are not the primary external costs not entering into their
culprits of environmental waste and degradation. In fact, it is through these calculation of input and output. They cut
mechanisms that men may best coexist with the Earth in harmony. down the trees without any regard for
fresh shoots or reforestation. In hunting
and fishing they do not shrink from
The Tragedy of The Commons methods preventing the re-population of
the hunting and fishing grounds.155

One of the more salient concepts to understand when discussing Private owners of goods have a direct incentive to maintain and improve
environmental trauma is the tragedy of the commons – a situation in which their capital value as they stand to personally and directly benefit from the
untrammeled public use of a resource reduces its value to each user. To value the goods retain. For instance, it is often in one's best interest to
illustrate this, suppose a teacher throws a pizza party for her class and buys maintain his home in good quality in the event he desires to sell it or pass it
each of her students a personal pan pizza and a can of soda. Presumably, down to his children. The home itself may be more beneficial if its integrity
the children would proceed to consume the soda and pizza at a leisurely is maintained. Conversely, a politician who has temporary control over a
rate based primarily on hunger. In another case, instead of the teacher given set of resources – but has neither the right to sell the resources for
offering each of her students their own cans of soda and personal pans, she personal gain nor does he suffer substantial consequences for their abuse –
purchases three large pizzas and six liters of soda and places no restrictions will be more inclined to exploit those resources as much as possible for
on how much they may each eat or drink. Are the children more inclined to
consume the pizza more slowly, at the same rate, or more quickly? One
does not need to be an economist to answer this question; the children, 155 Mises, ibid, 652.
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 A SPONTANEOUS ORDER ENVIRONMENTALISM

political gain with relatively less care for their future capital value. i.e., without taking into account that every
property right has a history (temporal
genesis).
Easements
If A currently physically damages the
property of B (for example by air
When one homesteads unowned land, he is not merely conferring pollution or noise), the situation must be
to himself exclusive right to occupy a certain space, but also, in his use of judged differently depending on whose
said good, he is acquiring rights to do with it as he wishes given that the property right was established earlier. If
activities performed do not involve uninvited physical interference with the A's property was founded first, and if he
property of others. To illustrate this, suppose John homesteads or had performed the questionable activities
purchases a plot of land and decides to start a rock band which, at the time, before the neighboring property of B was
does not cause uninvited physical interference with the property of others. founded, then A may continue with his
He is, say, too remote to have any effect on his neighbors. By doing so, he activities. A has established an easement.
earns the right to produce the level of noise associated with his band on his From the outset, B had acquired dirty or
property, despite the fact that the noise may traverse beyond the physical loud property, and if B wants to have his
boundaries of the property itself. Such a right is commonly referred to as an property clean and quiet he must pay A
easement. Now, suppose Sue purchases property adjacent to John's and for this advantage. Conversely, if B's
complains about the excessive noise. Of course, Sue is free to request that property was founded first, then A must
John keep the noise down or that he only perform at certain times, but stop his activities; and if he does not want
from a libertarian standpoint, she would have no legal grounds to forcibly to do this, he must pay B for this
stop John from producing the noise his band generates. As John was within advantage. Any other ruling is impossible
his rights to play music when he had no neighbors, he develops an and indefensible because as long as a
easement where he has already acquired the right to produce such noise by person is alive and awake, he cannot not
operating his rock band prior to Sue's moving in. The same methodology act. An early-comer cannot, even if he
may be applied with air, water, or any other form of pollution. If a factory wished otherwise, wait for a late-comer
was polluting the air of a surrounding area prior to a residential community and his agreement before he begins
being established in its vicinity, then the residents of said community would acting. He must be permitted to act
have no just legal grounds to force the factory owner to halt the practices of immediately. And if no other property
his factory. besides one's own exists (because a late-
However, in the case of John and Sue or of the factory owner and comer has not yet arrived), then one's
the residential community, if John begins to produce more noise than he was range of action can be deemed limited
prior to Sue moving in next door or if the factory produces more pollution only by laws of nature.156
after the residential community was established, then both Sue and the
residential community would have solid legal grounds to acquire an
injunction against John and the factory respectively for the amount of noise Trespass and Nuisance
and air pollution that is being generated in excess of their easements.
Hoppe iterates the concept in a slightly different way:
Unbeknownst to many self-identifying environmentalists today,
Another, equally common much of the pollution that occurs would be prohibited in a free market
misunderstanding of the idea of private society as such pollutants would be considered a violation of property rights
property concerns the classification of on the grounds of trespass or nuisance. William Prosser identifies the
actions as permissible or impermissible
based exclusively on their physical effects,
156 Hoppe, ibid, 8.
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 A SPONTANEOUS ORDER ENVIRONMENTALISM

distinction: illegal.

Trespass is an invasion of the plaintiff's In contrast, consider the case of radio

interest in the exclusive possession of his waves, which is a crossing of other
land, while nuisance is an interference people's boundaries that is invisible and
with his use and enjoyment of it. The insensible in every way to the property
difference is that between… felling a tree owner. We are all bombarded by radio
across his boundary line and keeping him waves that cross our properties without
awake at night with the noise of a rolling our knowledge or consent. Are they
mill.157 invasive and should they therefore be
illegal, now that we have scientific devices
Indeed, both nuisance and trespass cause uninvited physical interference to detect such waves? Are we then to
with the property rights of others. The simple upholding of private property outlaw all radio transmission? And if not,
rights is the legal defense against much of the pollution decried by modern why not?
day environmentalists. It is indeed the State's monopolization of the legal
system and its refusal to uphold private property rights that is the cause of The reason why not is that these
most the environmental destruction witnessed today. A commonly cited boundary crossings do not interfere with
reason for such deviations from private property protection against third anyone's exclusive possession, use or
parties is to favor the “greater public good which may be diminished if such enjoyment of their property. They are
private property rights were upheld absolutely” – i.e., in the case of eminent invisible, cannot be detected by man's
domain. senses, and do no harm. They are
Murray Rothbard explains why trespass and nuisance are indeed therefore not really invasions of property,
violations of property rights, and conversely why certain other invasions of for we must refine our concept of
ones property by particles or energy, which are undetectable by the senses invasion to mean not just boundary
and produce no harm, do not constitute such violations: crossing, but boundary crossings that in
some way interfere with the owner's use
First, a direct trespass: A rolls his car onto or enjoyment of this property. What
B's lawn or places a heavy object on B's counts is whether the senses of the
grounds. Why is this an invasion and property owner are interfered with.
illegal per se? Partly because, in the words
of an old English case, 'the law infers But suppose it is later discovered that
some damage; if nothing more, the radio waves are harmful, that they cause
treading down of grass or herbage.' But it cancer or some other illness? Then they
is not just treading down; a tangible would be interfering with the use of the
invasion of B's property interferes with property in one's person and should be
his exclusive use of the property, if only illegal and enjoined, provided of course
by taking up tangible square feet (or cubic that this proof of harm and the causal
feet). If A walks on or puts an object on connection between the specific invaders
B's land, then B cannot use the space A and specific victims are established
or his object has taken up. An invasion by beyond a reasonable doubt.158
a tangible mass is a per se interference with
someone else's property and therefore This explanation provides a more refined insight to the boundaries of

157 William Prosser and Werdner Keeton, Prosser and Keeton on the Law of Torts (St. 158 Murray N. Rothbard, “Law, Property Rights, and Air Pollution,” Cato Journal 2,
Paul: West Publishing Company, 1984), 595. No. 1 Spring (1982): 55-99.
238 239
 A SPONTANEOUS ORDER ENVIRONMENTALISM

property rights and how individuals may be able to internalize some A’s handgun to shoot B, I am the
common externalities. murderer, not A. I violated A’s right to
control the gun; but A’s right to the gun
does not make him the murderer. We can
Strict Liability see that the idea of strict liability as it
applies to 'responsibility for owned things'
is deeply flawed.
Strict Liability is the legal concept whereby the owner of some
property is held legally liable for damages suffered by others from this In other words, just because you have no
property that is due neither to the negligence nor fault of the owner. right to commit aggression (via any
Attorney and libertarian legal theorist Stephan Kinsella provides a cogent means, whether the means are your
critique of the idea of Strict Liability: owned property or not, or even other
humans, whether owned or not) does not
Many libertarians seem to assume the mean that property rights are “limited.”
validity of some kind of “strict liability.” The non-aggression principle limits what
They say this with respect to property, actions you are permitted to engage in.
when they assume that the owner “is And since inanimate property does not
responsible” for harm that is done by or act by itself, then it never commits crimes.
with his property. It is people who commit crimes. If the
owner commits a crime, he is liable,
I believe this an unjustified assumption, whether he uses his own property or not.
and is based on lack of careful analysis of But if another person uses my property to
property rights. Property is the right to use commit a crime, why should I be liable? It
or control a scarce resource. It is not was not my action. Therefore, we can see
immediately clear why the right to use that the assumption that 'ownership
would imply obligations. Thinking this implies responsibility' is relatively
way clouds other property-related issues mindless, unthinking, and useless.159
like IP. People say, for example, that IP is
not problematic just because it limits what
you can do with your own property–after Tort/Negligence
all, your rights in your property are not
unlimited, since you can’t use your
property to commit aggression against Torts are relevant in the context of pollution and other
others. environmental concerns, especially in a society characterized by a libertarian
legal system.160 Kinsella provides insight on the task of detailing the
This latter phrase is said repeatedly by
libertarians. I can’t count how many times 159 Stephan Kinsella, "The Libertarian Approach to Negligence, Tort, and Strict
I’ve heard it over the years. The problem Liability: Wergeld and Partial Wergeld" (published in a blog post on
is it improperly links the prohibition on [Link], September 1, 2009),
aggression to ownership of one’s own <[Link]
property, thus implying that property tort-and-strict-liability-wergeld-and-partial-wergeld/>
160 Cornell University Law School defines torts as "civil wrongs recognized by law as
rights are limited. But a crime is simply an
grounds for a lawsuit. These wrongs result in an injury or harm constituting the basis
action, and actions employ means. But the for a claim by the injured party. While some torts are also crimes punishable with
actor does not need to own the means. If I steal imprisonment, the primary aim of tort law is to provide relief for the damages
incurred and deter others from committing the same harms. The injured person may
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 A SPONTANEOUS ORDER ENVIRONMENTALISM

libertarian approach to negligent torts in general: intends to achieve a

given end).
A wrongdoer is someone who
intentionally causes harm or does Notice that this analysis
something that gives the victim or helps to explain why
recipient of the action a right to forcefully damages or punishment
respond. This is true in the case of is greater for intentional
aggression; threats (the action of crimes than for negligent
attempting harm, or making someone torts that result in similar
fearful of receiving a battery gives rise to damage. For example,
a right to use force in response); fraud punishment is an action:
(the defrauder intentionally and it is intentional and aims
knowingly takes property of the victim at punishing the body of
without the victim’s genuine consent)... the aggressor or
tortfeasor. In punishing
So how should we view negligence? I a criminal, the
believe it should be viewed as being on a punishment is justified
spectrum between non-action or mere because the criminal
behavior, and fully intentional action himself intentionally
(crime). It is “partially” intentional. As I violated the borders of
noted in Causation and Aggression: the victim; the
punishment is therefore
… when we ask if symmetrical ….
someone was the cause However, in punishing a
of a certain aggression, mere tortfeasor, the
we are asking whether punishment is fully
the actor did choose and intentional, but the
employ means to attain negligent action being
the prohibited result. For punished is only
there to be 'cause' in this 'partially' intentional.
sense, obviously there Therefore punishing a
has to be cause-in-fact– tortfeasor can be
this is implied by the disproportionate; it
notion of the means would be symmetrical
employed “attaining” or only if the punishment
resulting in the actor’s were also 'partially'
end. Intentionality is also intentional. But
a factor, because action punishment cannot be
has to be intentional to partially intentional;
be an action (the means therefore, the damages
is chosen and employed inflicted (or extracted)
intentionally; the actor have to be reduced to
make the punishment
sue for an injunction to prevent the continuation of the tortious conduct or for more proportionate.161
monetary damages."
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 A SPONTANEOUS ORDER ENVIRONMENTALISM

Externalities
Kinsella's interpretation of torts creates a justification for
punishment in the event of a "partially intentional" property rights
violation. Moreover, it demonstrates why an "eye for an eye" punishment is Often times, environmental damages such as pollution and ozone
inappropriate when applied to such cases where negligence is the cause of a depletion are referred to as externalities: external effects of one's private
property rights violation. For instance, if Peter were to, with full intention, actions. Many argue negative environmental externalities warrant the
run over and kill Bill, then executing Peter would be a justifiable intervention of the State, as their very existence supposedly reflects
punishment due to its symmetry with the crime. However, if Peter were to shortfalls of free markets (i.e. “market failures”). In short, the theory of
run over and kill Bill due to negligence, then executing Peter as punishment externalities refers to those
would be unjustified. This is because the act of executing Peter is not
symmetrical with Peter's act of involuntary manslaughter. ... cases where some of the costs or
Action is defined as the deliberate use of means aimed at achieving benefits of activities 'spill over' onto third
a certain end(s). An action aimed towards execution is not commensurate parties. When it is a cost that is imposed
with an action aimed away from killing that yields this unfortunate result on third parties, it is called a negative
nonetheless. Though Peter's action was not explicitly aimed at killing Bill, externality. When third parties benefit
his act is still considered “partially intentional” towards this end as it did from an activity in which they are not
involve the deliberate use of means to achieve an end which necessarily put directly involved, the benefit is called a
Bill at risk (otherwise Bill could not have been killed as a result of the positive externality.162
action). Thus, it would be more appropriate to reduce Peter's punishment,
to a level commensurate with the degree of risk he placed on Bill's life. If Thus, the common rationale for State intervention is to use its legislative
Peter's act placed Bill's life at a 25% chance of being extinguished, then powers for the purpose of restricting negative externalities, such as
Peter's punishment should at least be reduced 75% with respect to the pollution, and promoting positive externalities via subsidies, such as public
ultimate penalty of execution. How one’s level of intentionality is to be education. However, what is often overlooked are the means required to
determined, the percentage of risk his actions placed on others assessed, take such measures, and the externalities these means produce. The true cost
and what punishments correspond with negligence related reductions (or benefit) of any given action to another individual is impossible to
cannot be known for certain in advance, and, as such, would be determined objectively determine; this follows from the fact that one cannot compare
by arbitration, available evidence, and case precedent. value interpersonally. One may determine that the actors involved in a
Of course, there are other mitigating factors to consider where voluntary trade must see it as mutually beneficial, but one cannot ascertain
Peter could run over and kill Bill, but he might be held less liable, or not be the exact degree of benefit each party gained, much less the negative or
held liable at all. For instance, if Bill jumped in front of Peter's car, then positive effects the transaction had on uninvolved third parties. Therefore,
Peter would likely not be held legally liable as Bill would be assessed as the to promote aggressive State solutions to remedy negative externalities is to
cause of his own death. Alternatively, if Charlie ran Peter off the road, impose a concretely destructive and unjustified activity for the pursuit of an
causing Peter to run over and kill Bill, then Charlie would be held liable for outcome whose net beneficial or destructive effects cannot be known.163
Bill's death, not Peter despite the fact that he was the one who ran Bill Ironically, however, the common law legal mechanisms which were
down. Finally, should Peter have suffered from an unforeseeable seizure used to effectively defend against negative externalities were curtailed by the
while driving that caused him to swerve and crush Bill, then he should not State centuries ago in pursuit of the "greater public good." The prior legal
be held liable, as this would be the result of Peter's completely unintentional mechanisms were simple, consistent, justified, and effective as they were
behavior as opposed to his "actions" (intentional behavior). Thus, one's guided by the ultimate end of upholding private property rights. Walter
criminal or tortious liability is contingent upon whether or not his actions are Block describes the solution:
judged to be the cause of a property rights violation.
162 Gene Callahan, "What Is an Externality?" The Free Market 8th ser. 19 (2001).
163 For an advanced overview of the Austrian perspective on value and utility, see
Jeffrey Herbener, "Further Explorations in Austrian Value and Utility Theory"
161 Kinsella, “The Libertarian Approach to Negligence, Tort, and Strict Liability: (lecture presented at Mises University, Ludwig Von Mises Institute, Auburn,
Wergeld and Partial Wergeld.” Alabama, August, 2005).
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State is indeed better suited at taking care of these resources than any
There was a way to force private polluters private owners could be. As illustrated by the tragedy of the commons, the
to bear the social cost of their operations': incentive structure for agents of the State to take care of public lands and
sue them, make them pay for their past properties is simply not as compelling as the incentive structure of private
transgressions, and get a court order ownership where the owner stands to directly benefit from maintaining and
prohibiting them from such invasions in building on the capital value of these goods. For example, say a wealthy
the future. businessman acquires Yellowstone National Park. In freed markets, the
incentives he faces support a more productive use of those resources.
Upholding property rights in this manner Perhaps tourism to an ecological preservation is less rewarding to all parties
had several salutary effects. First of all, than transforming the land into a space center, an amusement park, a sports
there was an incentive to use clean stadium, selling parcels of it for residential purposes, etc. While the
burning, but slightly more expensive maintenance of Yellowstone as an ecological site is visible under State care,
anthracite coal rather than the cheaper it is not clear that such a purpose is the most value-productive end to which
but dirtier high sulfur content variety; less it could be put – only the interactions between individuals in a marketplace
risk of lawsuits. Second, it paid to install can tend to arrive at the most productive use. Because money is able to
scrubbers, and other techniques for purchase an entire spectrum of goods and services, transforming the land –
reducing pollution output. Third there or carefully preserving it as a preservation – will tend to follow from his
was an impetus to engage in research and desire to act in ways which he believes will yield him the greatest monetary
development of new and better methods profits. Thus, if the owner appraises that the most profitable use of the land
for the internalization of externalities: is to preserve it for recreational use and appreciation, then he may spend
keeping one’s pollutants to oneself. resources to preserve its integrity and he may charge visitors admission.
Fourth, there was a movement toward the It is also important to recall that, in most cases, for someone to
use of better chimneys and other smoke acquire the wealth needed to purchase a landmass such as Yellowstone, he
prevention devices. Fifth, an incipient would first need to sell goods or services that people valued more than the
forensic pollution industry was in the price he asked for them. The desires of others in society would have already
process of being developed. Sixth, the played a large factor in this person's decisions regarding how to allocate his
locational decisions of manufacturing resources. This is due to the effects of free trade; arranging his property in a
firms were intimately affected. The law way that benefits society is how he would have generated his great wealth in
implied that it would be more profitable the first place. In the alternative case where someone merely inherits wealth
to establish a plant in an area with very or wins it in a lottery, if such people do not allocate their resources wisely,
few people, or none at all; setting up shop they will incur losses and progressively lose control over a wider range of
in a residential area, for example, would resources unless and until they start taking into account the preferences of
subject the firm to debilitating lawsuits.164 others in their allocation. This same analysis may be applied to lakes, rivers,
and any other owned thing.
Walter Block illustrates this with his lake example. If the owner
Preserving the Earth's Natural Treasures believes his lake is more profitable when used for dumping, he will likely
convert the lake accordingly and charge customers to dump. Conversely, if
he views the most profitable use of the lake to be recreation, he will use it
When one discusses the privatization of any currently socialized towards this end, charging people admission for its enjoyment. When
service, one of the most common objections levied is that doing so would deciding between the two uses, the owner will also likely take into account
diminish the capacity to preserve and maintain the resources involved for that he can switch his lake from a recreational use to a dumping one but
posterity. What is implicit in this objection is the unproven premise that the that it would be more difficult to do the reverse. On the surface, some may
find this disturbing as it would undoubtedly result in some lakes being used
164 Walter Block, “Environmentalism and Economic Freedom: The Case for Private for dumping. However, the supply and demand forces of the market will
Property Rights,” in Journal of Business Ethics 17 (1998): 1887-99.
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 A SPONTANEOUS ORDER ENVIRONMENTALISM

direct lake owners away from creating too many dumping lakes by means of central error with State or public ownership remains that no such objective
the profit/loss system. As more lakes would be used for dumping, there and accurate pricing mechanism exists to guide the actions of State actors
would be relatively fewer lakes for recreation. Due to the shortage, to employ resources under their command in the most efficient manner
recreational lake owners may be able to charge higher prices for admissions, possible, i.e., in a manner that generates the lowest opportunity costs for
generating more profits, causing future lake owners to act in kind, and even those resources. This is because the State's income is not voluntarily
to convince dumping owners and other non-owners to join the recreational provided; it is provided via coercive and aggressive mandate. When people
lake market, pushing the price down further.165 This, of course, is also are compelled by force to hand over their money, it becomes impossible to
equally and simultaneously true with regards to lakes for fishing, for determine their actual preferences as the amount of income received is not
exploration, for scientific testing, and for any end to which lakes can be put. commensurate with the level of desirability of a given good or service.166
The motive to maintain the capital value of one's property will also Contrast this with entrepreneurs in a free market where contributions are
serve to prevent an over-harvesting of trees from a forest or fish from the entirely voluntary and, therefore, do reflect such desirability. When
sea. If a landmass is valuable due to its lumber, then one has a natural politicians regulate the uses of public resources, they are more compelled to
incentive to not harvest more than he is able to replenish, so that he may employ them in the direction of special interests and political pursuits as
maintain his future cash flow. Likewise, if one's section of ocean or lake opposed to employing them in such a way as to maximize their capital
derives value from the number of its inhabitants, it will be in the owner's value. This, of course, results in over-consumption and misallocations as
best financial interest to not consume more of them than he is able to their command over such resources is temporary yet their positions do not
replenish. allow them to reap direct benefits from their capital value. This leaves the
politicians with only one personally advantageous course of action: to
exploit and consume the resources under their command as much and as
Pricing Mechanism quickly as possible.

The subject of an untainted pricing mechanism warrants specific Water Privatization

mention as it has great implications for the advocacy of private control. As
prices reflect the relative scarcities, demands, and opportunity costs of using
resources in particular ways, they represent a quantitative metric by which Today, unfortunately, most aqueous resources are owned by the
easy assessment of the value of one's actions is possible – by monetary State:
profits and losses. An entrepreneur experiencing losses indicates he is
employing his resources in a way that members of society value less than First, the rivers. The rivers, and the
they did prior to the entrepreneur employing them in such a manner. The oceans too, are generally owned by the
reverse is true for profits. An owner profiting from his employment of government; private property, certainly
resources means that he is transforming existing resources in a manner that complete private property, has not been
members of the market value more than they valued the state of their permitted in the water. In essence, then,
previous arrangement. government owns the rivers. But
Naturally, then, the existence of money and money prices allows government ownership is not true
for rational economic calculation; entrepreneurs have something real by ownership, because the government
which they can measure their performance. The driving force of the officials, while able to control the
entrepreneur is the desire to create value and give others a reason to part resource cannot themselves reap their
with their money. If he earns more than it cost him to start the project, it's a capital value on the market. Government
success – if not, it's a loss. With prices derived from private ownership, it's officials cannot sell the rivers or sell stock
possible to examine the economic configuration of one's resources. One in them. Hence, they have no economic
can examine not simply what to produce, but how to produce it. Thus, the
166 Murray N. Rothbard, “Toward a Reconstruction of Utility and Welfare Economics,"
165 Walter Block, “Economics and the Environment: A Reconciliation,” (interview, in On Freedom and Free Enterprise, edit. Mary Sennholz. (Princeton: Van
1985). [Link] Nostrand, 1956), 23.
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 A SPONTANEOUS ORDER ENVIRONMENTALISM

incentive to preserve the purity and value this is due, in turn, not to any primordial
of the rivers. Rivers are, then, in the fact of nature or law. Rather, it is because
economic sense, 'unowned'; therefore the law has not yet been changed so as to
government officials have permitted their recognize even the possible future
corruption and pollution. Anyone has scenario where ocean privatization would
been able to dump polluting garbage and be economic. The public policy
wastes in the waters.167 recommendation stemming from this
analysis is merely that the law should now
Because many aqueous resources are not privately owned, the tragedy of be changed so as to recognize fish
the commons plagues their use and integrity. Over-fishing, dumping, oil ownership in a given cubic area of ocean
spills, and other forms of pollution abound as no one has a direct and when and if such an act becomes
exclusive means to privatize the benefits of taking measures to maintain the technically viable. Then, whether or not it
integrity of the water. This contrasts with the incentives private owners actually occurs is only an empirical
have to prevent others from unjustly dumping trash or otherwise polluting question. It will, if and only if the
their water. The cleaner one's water resources, the greater market value they complementary technology is
have. The private owners would have a more direct and vested interest in forthcoming to make it feasible. But
preserving the quality of the aqueous resource for whatever end they deem under this ideal state of affairs, there
to be most profitable in the long run. would be no legal impediment, as there
Furthermore, geographic coordinates can serve as barriers for now is, in this direction. That is, suppose
adjacent, contiguous water resources. Despite the water moving in and out that the needed innovations never occur,
of one's territory, it is possible to homestead sea space and establish norms or are always too expensive, compared to
governing pollution of that space. If Sarah purchases a property with a river the gains to be made by herding fish
running through it that has pollutant level X, and her neighbor upstream instead of hunting them. Then, of course,
begins to dump in the river such that the pollutant level exceeds X, she will there can be no private property rights
have legal grounds to enjoin her neighbor's polluting activities. Of course, used in this manner in the ocean, as a
such legal means would only be necessary if Sarah and her neighbor had not matter of fact. But as a matter of law,
or could not work out some voluntary arrangement, such as payment for things would still be different under the
the excess dumping. present proposal. There would always be
As for the question of how one may create borders in such aqueous the contrary to fact conditional in
resources, this is merely a technical problem. Walter Block suggests the law operation that if technology were such,
should consider future scenarios openly: then it would be legal to fence in parts of
the ocean for these purposes. Under this
This scenario assumes, of course, that the state of affairs, there would be no legal
necessary complementary technological impediments to the development of the
breakthroughs occur, such as either requisite technology.168
genetic branding, or perhaps better yet,
electrified fences, which can keep the One other benefit of privatizing water resources is that doing so
denizens of the deep penned in where would create an incentive to implement and invent non-water polluting
deep sea fish farmers want them. Yes, this industrial activities and technology. Not only this, but the development of
seems unlikely at present, given that water polluting forensics would also take place to assist damaged parties in
under present law there would be no establishing proof regarding whom exactly is causing harm to whose
economic benefit to such inventions. But property. These go hand in hand; as more effective forensic techniques are

167 Murray N. Rothbard, "Conservation, Ecology, and Growth," in For a New Liberty: 168 Walter Block, “Water Privatization,” (unpublished manuscript)
The Libertarian Manifesto (New York: Macmillan, 1973), 317-18. [Link]
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 A SPONTANEOUS ORDER ENVIRONMENTALISM

developed, so too are the incentives for would-be polluters to not pollute so the victim, even if the action is
that they may avoid any potential legal liability. 'reasonable' or accidental. Finally, such
In regards to oil spills, people who own certain portions of aggression may take the form of pollution
shipping lanes in the ocean may charge more for the passage of single of someone else's air, including his owned
hulled oil tankers than double hulled ones, as the former present a larger effective airspace, injury against his
risk for spillage which will have a direct impact on the value of their owned person, or a nuisance interfering with his
section of the ocean. In this way, terrible environmental externalities like oil possession or use of his land.
spills may be mitigated by market forces.
This is the case, provided that:

Air Pollution 1) the polluter has not previously

established a homestead easement;
2) while visible pollutants or noxious
Rothbard writes of Robert Poole, that he: odors are per se aggression, in the case of
invisible and insensible pollutants, the
cogently defines pollution 'as the transfer plaintiff must prove actual harm;
of harmful matter or energy to the person 3) the burden of proof of such
or property of another, without the aggression rests upon the plaintiff;
latter's consent.' The libertarian — and 4) the plaintiff must prove strict
the only complete — solution to the causality from the actions of the
problem of air pollution is to use the defendant to the victimization of the
courts and the legal structure to combat plaintiff;
and prevent such invasion.169 5) the plaintiff must prove such causality
and aggression beyond a reasonable
Much of the same reasoning applied to water pollution also applies to air doubt; and there is no vicarious liability,
pollution. Polluting the air on another's property without invitation is but only liability for those who actually
considered either a trespass or harmful nuisance (provided an easement to commit the deed.170
pollute was not previously attained), and, as such, may be stopped or
enjoined by court order. Just like water pollution, upholding private Many may object to this methodology by citing the current day
property rights will: deter dirty companies from establishing their facilities technical limitations in determining which emitters are responsible for
near residential communities, incentivize such companies to devise ways to pollution and to what degree they are responsible. This is, of course, a
mitigate their pollution, and create a greater demand for the development of genuine concern, but is, once again, merely a technical one, and technical
forensic techniques to help identify polluting culprits. Rothbard summarizes limitations do not justify imposing aggressive measures to compensate for
the criteria to be met before someone may justifiably be held liable for air their shortfalls. Even from a utilitarian standpoint, such aggressive measures
pollution: create a slew of effects which contribute to the deterioration of the overall
standard of living for society and cannot, without arbitrary decree, be said
We have established that everyone may to mend more issues than they create. To employ them also sets a
do as he wishes provided he does not dangerous precedent upon which more may be imposed for similar ends.171
initiate an overt act of aggression against Rothbard warns about taking this seemingly easy way out:
the person or property of anyone else.
Anyone who initiates such aggression
must be strictly liable for damages against
170 Rothbard, “Law, Property Rights, and Air Pollution.”
171 Today's positivistic State-supported legal system is a prime example of what may
169 Rothbard, For a New Liberty. result from this line of thinking.
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 A SPONTANEOUS ORDER ENVIRONMENTALISM

The prevalence of multiple sources of insects for medical research, or someone else may want to preserve
pollution emissions is a problem. How are populations of deer for sport, etc. There is also, of course, the opportunity
we to blame emitter A if there are other for strict preservationists to pool their money or resources and purchase
emitters or if there are natural sources of land for the mere sake of preventing other humans from using it in a way
emission? Whatever the answer, it must they feel is destructive of its natural integrity. This method may be used to
not come at the expense of throwing out preserve lands, waters, certain animal species, mineral resources, and more.
proper standards of proof, and conferring Some people prefer to abstain from consuming certain animals or other
unjust special privileges on plaintiffs and resources, and, for this reason, may receive the greatest amount of psychic
special burdens on defendants.172 profit from establishing such preserves. Nothing about setting up such
preserves would be in any way incompatible with private property rights or
free enterprise.
Animal Extinction

Waste Disposal
Animals, like all other scarce goods, are subject to the destructive
effects of the Tragedy of the Commons. If they are prohibited from being
privately owned, then humans will invariably tend to consume them in an The negative externalities associated with waste disposal may also
uneconomic manner. Walter Block uses the Cow and Buffalo analogy to be internalized if free people are permitted to perform these services and to
express this concept: own dump sites privately. Private, in this context, is not intended to
reference the fascistic relationship of waste management firms being
It is a well-known fact, at least within the contracted out for public use paid with tax dollars. This setup creates moral
free market environmental community, hazard for the consumer when deciding what types of items to buy – and
that the cow prospered, due to private how to dispose of his unwanted goods – as the bill for disposing them has
property rights which could avert the already been paid despite how much he or she dumps. Truly private dump
tragedy of the commons, while the bison site owners may be inclined to charge more for materials which are
almost perished as a species due to lack of scientifically shown to be more toxic or harmful. Such higher charges may
the same. Nowadays, happily, this be used to compensate the owner for potential liability costs or for the
problem has been remedied with regard mitigation of his property’s value by their contamination. Likewise,
to the buffalo. But the whale, the consumers may be charged more to dispose of items containing Styrofoam
porpoise, edible fish and other sea species or plastic, and they may become more inclined to purchase products
are dealt with, at present, in precisely the packaged in less environmentally destructive materials to reduce disposal
same manner which almost accounted for costs. This, of course, does not mean that people will stop using plastic and
the disappearance of the bison.173 Styrofoam altogether, but rather that such materials would only be used
when one subjectively determines that the unique benefits of their usage
exceeds the high costs of their disposal, as he will now be bearing its full
Of course, certain species may go extinct if they are viewed as a nuisance to costs. In this way, the self-interest of the dump site owner to make as much
the great majority of humans e.g., locusts, mosquitoes, etc. This being a money as possible coincides with the consumer's desire to save as much
work on environmental economics and not biology, there will be no money as possible; they are harmonized with the actions requisite to
attempt to identify which species has the potential to benefit mankind on maintain the environmental integrity of the Earth. This is not to say that
net and which ones do not. However, for those species appraised to have such a paradigm will create an environmentally pure utopia, but merely that
some market value, there will be a demand to maintain their populations. the incentive structures would be much more appropriately aligned toward
Perhaps universities may want to acquire certain species of reptiles or promoting behavior which is more environmentally friendly than the
incentive structure present in today's State managed paradigm. Andrea
172 Rothbard, ibid. Santoriello explains in concrete terms:
173 Block, ibid.
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 A SPONTANEOUS ORDER ENVIRONMENTALISM

bureaucrat, technocrat, or politician who effectively manages all of Nature's

In the case of solid-waste management, functions, nor is there any single component of Nature which handles this
plastic companies and their customers task alone. What do exist are voluntary groupings of animals with symbiotic
escape from the cost of disposing of relations whose members have the capacity to divorce themselves from
plastic after the consumer is finished with such relationships as soon as they deem prudent. There is also predator and
it. This is because most garbage collection prey. Though these animals are not bound by concepts like the Non-
is organized through the public sector. Aggression Principle – as they have little to no capacity to recognize and
The cost of disposing of the plastic and understand its meaning – we can still bear witness to the beauty and
the other waste is undertaken by the complexity of the spontaneous order that results absent a central director
government, and a citizen is typically with the sole legal power to violently impose its will upon all others. If the
taxed without regard to the amount of population of a predator species grows too large, its food supply will
trash he generates. Once the citizen pays diminish, which will, in turn, diminish the population of said predator
his taxes, he has no incentive to choose species. Even the plants which survive harmoniously with their
environmentally sound goods because surroundings will thrive and multiply while the ones that do not will die off
disposal costs are in effect free to him. If, and give way to more suitable vegetation. Thus, Nature is not the antithesis
instead, there were complete privatization of a free market society; it is, instead, a reflection of its efficacy in the non-
of the garbage disposal industry, those human realm. Nature has no opinion or volition. It must operate according
who generate trash would directly pay for to its own laws where the system that results is one which is bottom-up, not
disposal costs. The owner of a private top-down, and which responds immediately and perpetually to the ever-
dump tends to charge tipping fees that changing variables of its inhabitants. No single individual or group of
vary with different kinds of trash. The individuals could ever hope to artificially replicate such an efficient and
price will be significantly higher for adaptable system. Thus, proponents of a free market do not seek to
material that creates toxic waste because arrogantly replace Nature with a superior man-made system, but rather to
the dump owner will be liable for any operate under a set of principles whose prototype is Nature itself. It should
harmful leaks from his site. The hauling be telling that the only assumption those who advocate freed markets make
firm, which collects the garbage from the regarding human beings is that they act in ways to secure satisfaction, utility,
homeowner and must pay the tipping fee, and profit. The concept of a freed market is not a theory for idealists, but a
will pass the price onto consumers. perspective that recognizes and orients itself according to what is known
Consumers, knowing that they will have about human nature, contrariwise to the assumptions advocates of State
to pay more for the disposal of more management make, who must assume their authority figures have a greater
plastic, will tend to substitute toward less economic awareness or more benevolent intentions than the citizens over
costly, and thus more environmentally which they preside. Rothbard beautifully illustrates the confusion:
sound, containers. In the jargon of
economists, the negative externality will Thus, when we peel away the confusions
disappear; the cost of trash disposal will and the unsound philosophy of the
be internalized, brought to bear on the modern ecologists, we find an important
responsible parties.174 bedrock case against the existing system;
but the case turns out to be not against
Freeing markets and protecting the environment are not mutually capitalism, private property, growth, or
exclusive, in fact, they both operate under the same principles and are technology per se. It is a case against the
managed in the same organic and decentralized manner. There is no failure of government to allow and to
defend the rights of private property
174 Andrea Santoriello, "Externalities and the Environment," in The Freeman against invasion. If property rights were
(Foundation for Economic Education: Nov. 1996. to be defended fully, against private and
<[Link]
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 A SPONTANEOUS ORDER

governmental invasion alike, we would

find here, as in other areas of our
economy and society, that private
enterprise and modern technology would
come to mankind not as a curse but as its
salvation.175
Chapter Fourteen
THE CORPORATION

CORPORATIONS ARE ONE of the most stigmatized and

misunderstood institutions in the economy. This prejudice is held not only
by the left leaning or socialist types, but pervades many libertarian circles as
well. Like many other prejudices, however, this malcontent is not
completely unfounded as various corporations and their agents have pushed
for the implementation of harmful and exploitative measures. However, a
great majority of the harm brought on or encouraged by corporations is
ultimately rooted in their relationship with the State. Such harmful measures
involve the erection of aggressive barriers to entry into various industries
which include, but are not limited to: occupational licensure, intellectual
property laws, minimum wage laws, taxes, and other expensive regulations
with the ostensible purpose of protecting the consumer. Of course, there is
nothing wrong with the stated intent of such regulations. Rather, the issue is
the means by which they are enforced, and the fact that a single institution
has the exclusive legal privilege to create, interpret, and enforce these
regulations: the State.
As we discussed in previous chapters, the free market has its own
organic (and non-aggressive) regulatory powers, which act as a network of
checks and balances on the behavior of actors in the market. Natural
competition serves to align business interests with the interests of the
general consumer. However, attempting to change the organic regulatory
system of the market into an artificially controlled one presents a danger in
that such powers then become subject to human intrigue and error as
opposed to being impartially exercised according to the financial demands
of the consumer. Thus, when the State is able to usurp regulatory powers
over the marketplace a destructive zero-sum game manifests. Whereas,
before the organic regulatory functions of the market were merely
reflections of various actors pursuing their own ends, they now become to
an ever increasing degree the result of central direction and control. In this
context, inherent human self-interest will drive many businesses or firms in
the economy to appeal to the State for both defensive and offensive ends.
Businesses will realize that choosing to take the noble high road of not
appealing to this institution would only result in giving their less scrupulous
competitors an unfair advantage. Hence, the formation of the State
175 Rothbard, For a New Liberty, 327. regulatory agency causes the entrepreneur's ultimate pursuit of profit to be
258 259
 A SPONTANEOUS ORDER THE CORPORATION

entangled with two opposing ends: satisfying the consumer and satisfying chapter is simply this: absent the State, corporations will be profit seeking
the State. and wealth producing institutions just like all others in the free market. True
It now becomes economic to spend millions of dollars on political exploitation is difficult to imagine if property is respected. That said, any
campaigns to influence a particular politician to support bills harmful to socially maligned behavior that is perpetrated by firms in a free market will
one's competitors and favorable to themselves. The opportunity costs are be immediately met with losses and damaged reputation, each of which
the R&D, advertising, or reinvestment into a more robust capital goods disempowers the exploiter and serves to deter others from acting in kind.
infrastructure that may have otherwise taken place. Invariably, the larger a The free market accomplishes this, not with aggressive edict, but with the
given firm becomes the more involved it will tend to be with matters of the precise and organic mechanism spawned by the presence of consumer
State as its success increasingly comes to rely on compliance with an choice and competition, namely the price mechanism. Many auditing
entrenched regulatory apparatus. In addition to this, a larger firm will have institutions and private certification agencies may also arise out of the
more resources by which to direct the State's power in its own favor and to consumer demand for easily recognizable markers for reputable and
the expense of its competitors. dubious institutions alike. In essence, the best way to prevent massive
It is important to note, that in a free market, the efficacy of a given exploitation, poverty, and interpersonal conflict is to establish a social order
firm's pursuit of profit is completely contingent upon the degree to which the centered around private property rights. Unlike the State, the corporation is
consumers' demands are satisfied. This creates a win-win paradigm: the firm a type of firm compatible with such rights. Thus, what is commonly
wins when the consumer does and vice versa. However, once the State perceived as corporate exploitation is in fact a symptom of the State.
enters the equation, a win-lose paradigm emerges where one firm may
suppress competition via legislative edict.
The power to legislate is the power to perpetrate aggression and is The Firm
thereby antithetical to private property rights, the free market, and justice.
Before the State may do anything it must first confiscate the wealth of its
"citizens" so that it may fund its own operations. It then confers upon itself Before delving into the details of the corporate model, it would
the exclusive right to produce legislation. In other words, any other behoove us to review the more foundational concept of "the firm." In the
institution which attempts to produce, interpret, and enforce law will be words of Nicolai Foss the firm is simply "an organization planned with the
violently vanquished. Finally, once said legislation has been produced, the express purpose of earning profit."177 Peter Klein defines the firm as: "the
State enforces it via the application or threat of physical violence. This capitalist entrepreneur plus the factors of production that he/she or they
would be perfectly legitimate if agents of the State were making such own."178 In layman's terms, a firm is a business, i.e. an explicit attempt to
dictates over the use of their own justly acquired property, i.e., over earn revenues over losses. In the following sections, we will briefly review
resources which they originally appropriated/homesteaded or received the four most prominent legal forms a firm may take: Sole Proprietorship,
through voluntary exchange.176 In reality, all the resources the State wields Partnership, Cooperative, and the Corporation.
were at one point expropriated or stolen from others, and they are now
being used to further erode the property rights of its subjects by dictating to
them what they can and cannot do with their property (above and beyond Sole Proprietorship
not using it as an instrument to aggress against the persons or property of
others).
With all this said, it becomes quite clear why the corporation has A sole proprietorship (aka proprietorship) is a firm where no legal
come to be a notorious source of exploitation: the largest firms tend to be distinction is made between the firm as an enterprise and the owner. The
corporations due to their ability to generate and manage large quantities of owner is personally liable for all losses and debts. Every asset and all profits
capital, i.e., money, factors of production, other assets, etc. Because are owned and to be used exclusively at the proprietor's discretion. The
corporations tend to be the largest firms, they tend also to be the ones most
intimately involved with the State, as their existence/profitability relies 177 Nicolai Juul Foss, "The Theory of the Firm: The Austrians as Precursors and Critics
heavily on legal and regulatory matters. The argument put forth in this
of Contemporary Theory," in The Review of Austrian Economics 7.1 (1994): 31-65.
<[Link]
176 After all, what one does with his own property is his prerogative, so long as in so 178 Peter Klein, "Production and the Firm" (lecture presented at Mises University,
doing he does not aggress against the persons or property of others. Ludwig Von Mises Institute, Auburn, Alabama, July 23, 2013).
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 A SPONTANEOUS ORDER THE CORPORATION

advantages of a sole proprietorship may include: will be up to the entrepreneur to decide ultimately which organizational
framework will be most suitable to his enterprise.
• Only small amounts of capital are needed to start and run one
• Easier to organize as there tends to be fewer moving parts
• The owner has full discretion over how the firm is run Cooperative
• Because the owner is fully and personally liable for debts, creditors
may be more willing to extend credit to a sole-proprietorship than
Cooperatives are firms which are owned by their patrons. These
a limited liability firm
owners may be the firm's customers, employees, suppliers or any
• The owner keeps all the profits combination. The common thread here being that the owners have a direct
connection or dealing with the firm. Some patrons may have larger shares
In contrast some disadvantages may include: of ownership over the firm based on their seniority or how much they have
invested into it. Moreover, cooperatives tend to be democratically managed.
• Potential investors or other creditors may be wary of involving They may or may not have limited liability. All members of the cooperative
themselves with a proprietorship, as the owner has relatively few (or "co-op") receive a share of the profits in accordance with their
checks on his behavior when compared with other types of firms proportion of ownership shares. Some co-ops may not even have members
• Proprietorships die with the owner, unless he is able to transfer it with varying levels of ownership, but instead provide an equal amount of
to someone else. This may be difficult as the successor would have shares to all and disperse the profits accordingly.
to be both intimately familiar with the firm's operations and willing
to accept total liability for its debts. This will likely be a factor
considered by prospective investors and creditors. Corporation
• These firms tend to have relatively less collateral than other firm
types, hence creditors may be more reluctant to extend large
amounts of credit. A corporation is a firm whose legal identity is separate and distinct
from its owners. Corporations may have their own assets, enter into
contracts, sue and be sued, lend or borrow money, and hire employees.
Partnership Investopedia defines it:

A corporation is created (incorporated) by a group of

A partnership is legally similar to the proprietorship with the shareholders who have ownership of the corporation,
exception that there are two or more owners as opposed to just one. All represented by their holding of common stock.
partners, just like in a proprietorship, are personally liable for the firm's Shareholders elect a Board of Directors (generally
losses and debts. Conversely, the partners of a firm divvy out the profits receiving one vote per share) who appoint and oversee
and managerial discretion amongst themselves. This alleviates some of the management of the corporation. Although a corporation
drawbacks of a proprietorship as its continuity is not contingent on a single does not necessarily have to be for profit, the vast majority
individual and its debts may be distributed amongst multiple parties. Thus of corporations are setup with the goal of providing a
partnerships tend to have more collateral and a greater ability to attract return for its shareholders. When you purchase stock you
investors and creditors than proprietorships. However, some unique are becoming part owner in a corporation.179
drawbacks will be the inefficiencies and difficulties involved with dissension
amongst partners as to what direction to take the firm and how it is to be One of the distinguishing characteristics of a corporation is that its
managed. However, such conflict may be mitigated by the partners agreeing ownership shares may be held by those whom have no direct tie to the firm,
to abide by the outcomes of a majority vote or through some other i.e., by people who neither manage, work for, buy from, or supply it. In
procedural method. Having multiple owners of a firm presents a series of
checks on its direction, which can bring unique costs and benefits. Thus it 179 "Corporation” on Investopedia.
[Link]
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addition, the shareholders of a corporation are only held financially liable partnership or any other organizational
for the firm's debts up to the amount they invested. For instance, suppose form. The only exceptions arise if
Joe buys ten shares from company X at one dollar each and the following government restricts or forbids freedom
day company X goes bankrupt. Suppose also that the company is divided of contract (such as the rule that forbids
into one hundred shares of ownership, and the company is one thousand limited liability for general partners).180
dollars in the hole. With this being the case, Joe would own ten percent of
the company but not ten percent of its debt. That is to say, if Joe were a ten
percent partner he would have to fork over one hundred dollars to the The Corporation
creditors (ten percent of the company's debt). However, because Joe is
merely a ten percent shareholder of a corporation, his stock merely loses all its
value rendering him just ten dollars poorer (the amount he invested into the Stocks
firm) as opposed to one hundred dollars (ten percent of the firm's debt).
This is due to what is known as the limited liability characteristic of the
corporation. Unlike partnerships and proprietorships, owners or A firm may sell its stock (shares of ownership) either privately or
shareholders in a corporation are not vulnerable to having their personal publicly on a stock exchange as a means to generate capital. One who
assets seized as remuneration for the firm's debts. The same goes for torts purchases stock from a given corporation may be said to own equity in the
committed by employees of the corporation. That is to say, shareholders are firm. The Mises Wiki offers an explanation of equity:
not held legally liable for torts committed by the corporation's employees
just because they are in its employ or were using its assets as the Equity is the legal claim of individuals to
instruments for said torts. the assets of a business after deducting all
obligations to others, namely, the
liabilities. They are often represented as
Free Market Society shares of a business which can be traded
(for instances in the corporate form of
legal business organizations).
Though the previous four legal types of firms are the most Organizations formed to assist the
common, this is not to say that in a free market society various hybrids of exchange of ownership interests in
these firms may not arise. So long as no aggression/fraud is being businesses are called stock exchanges.181
committed, there would be no limitations or prohibitions on what form a
given firm may take. Robert Hessen sums this up: Shareholders of a given corporation are allotted certain voting rights in
proportion to the number of shares they own. In most cases, shareholders
Any firm, regardless of size, can be will elect a Board of Directors to oversee the corporation's management
structured as a corporation, a partnership, and represent their interests, i.e., to act as a governing body ensuring no
a limited partnership, or even one of the actions are taken by the firm which could unduly jeopardize the value of its
rarely used forms, a business trust or an stock. Each shareholder is entitled to a percentage of a firm's profit
unincorporated joint stock company. commensurate with the percentage of the firm's shares he/she owns. Thus,
Despite textbook claims to the contrary, if John owns ten percent of a firm's shares and that firm generates one
partnerships are not necessarily small thousand dollars in profit, then he is entitled to one hundred dollars. One
scale or short-lived; they need not cease of the important functions of the Board of Directors, however, is to decide
to exist when a general partner dies or whether or not to disperse these profits to the shareholders directly in the
withdraws. Features that are automatic or form of dividends, use the profits to reinvest and expand the firm, or to
inherent in a corporation–continuity of
existence, hierarchy of authority, freely 180 Robert Hessen, "Corporations" in The Concise Encyclopedia of Economics, Econlib
transferable shares–are optional for a <[Link]
181 “Equity” on Ludwig Von Mises Institute." <[Link]
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 A SPONTANEOUS ORDER THE CORPORATION

repurchase stock. Each of these courses of action may help enhance the For the purpose of this chapter, we will be focusing on the corporation and
growth and value of the firm. However, the action or combination of stocks. The stock market allows one the ability to extend capital to any
actions taken will be case-dependent and require information that the publicly traded company. This creates an indispensable market for capital
average shareholder simply may not possess. This may be because the and acts as an additional mechanism by which any market participant may
average shareholder does not have the time or incentive to keep up with the influence the flow and allocation of resources. Other things equal, market
day-to-day management of the firm of which he is a partial owner; this will actors will tend to invest in those firms which they believe to have the
be especially true if he holds a small stake in it. greatest prospects for profits. Subjective factors, however, do play a role.
It is for this reason that the discretion over what to do with the Investors, like everyone, seek to maximize psychic income – of which
company's profits are delegated to the Board of Directors and the earning dividends happens to be a large portion.183 In a free market society,
management they oversee. They are generally more aware of where the firm those firms which enjoy large profits will tend to be the ones who add the
is and what it will take to maintain its growth and profitability. A given greatest degree of value to society. The stock market allows anyone to
corporation may also publish earnings reports at regular intervals to attract further empower and become, in an additional way, the beneficiaries of
creditors and/or investors. Corporations who do not publish their earnings various productive enterprises. Contrary to popular belief, such a market
have the benefit of retaining financial privacy from their competitors, but at acts as a bottom up and organic means by which to direct the flow of
the same time, they may find it more difficult to attract investors due to a capital. Mises comments on the integral functions performed by the stock
lack of transparency. There is no universally right or wrong path for a firm market:
to take in this regard; it is simply something that would have to be dealt
with on a case by case basis and at the discretion of those with the localized A stock market is crucial to the existence
knowledge to make profitable decisions. of capitalism and private property. For it
Finally, the price of a given corporation's stock is ultimately driven means that there is a functioning market in
by investor expectations of its current and expected future profitability. Put the exchange of private titles to the means
differently, one's willingness to purchase stock at a given price will be of production. There can be no genuine
contingent upon his projections of its future dividends and/or appreciation. private ownership of capital without a
Such projections may be derived from pure intuition, a detailed stock market: there can be no true
understanding of the related industry and the prospective company's role in socialism if such a market is allowed to
it, or from the assessments of credible investors (or a combination of exist.184
these).

Limited Liability
Stock Market

One of the most perpetrated myths regarding corporations is that

A stock market or stock exchange is a place where securities may they are or must be creatures of the State. This is categorically false, and is
be bought and sold. Mises Wiki defines securities: often times mistakenly thought to be the case due to the modern day
marriage between various mega-corporations and the State. However, this is
In finance, a security is an instrument merely a symptom of a State regulated economy. There is absolutely no
representing ownership (stocks), a debt reason why a corporate form of organization cannot be established by
agreement (bonds) or the rights to voluntary contract. Robert Hessen offers an opinion:
ownership (derivatives). A security is
essentially a contract that can be assigned a Moreover, to call incorporation a
value and traded.182 'privilege' implies that individuals have no
right to create a corporation. But why is

182 183 Rothbard, "Fundamentals of Human Action" Man, Economy, and State, 71-72.
"Security (finance)" Ludwig Von Mises Institute,
184 Rothbard, "A Socialist Stock Market?" Making Economic Sense.
<[Link]
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governmental permission needed? Who partially responsible for the tort. It is not who owns the instrument of
would be wronged if businesses adopted aggression that is legally liable per se, but rather the person who actually
corporate features by contract? Whose caused the property violation.
rights would be violated if a firm declared Now this is not to say that various corporations could not
itself to be a unit for the purposes of voluntarily make themselves liable for the actions of their employees for the
suing and being sued, holding and sake of establishing themselves as a "socially responsible establishment" in
conveying title to property, or that it the community. A firm may find the development of such a reputation to
would continue in existence despite the be conducive to its profit margin. In this case, a firm may declare "we
death or withdrawal of its officers or hereby transfer title up to X amount of dollars to any person found to be
investors, that its shares are freely damaged by the actions of any employee acting within the boundaries of
transferable, or if it asserted limited company protocol." This creates a voluntary binding contract for a given
liability for its debt obligations? If firm to provide restitution for such potential future damages. Above and
potential creditors find any of these beyond the binding nature of this contract, a company may also choose to
features objectionable, they can negotiate compensate individuals damaged by an employee acting outside the narrow
to exclude or modify them.185 boundaries of company protocol. A company may do this to avoid negative
public perception which may impact its profits. Kinsella provides
Limited liability for debts is not an overly complex issue to resolve additional commentary on the compatibility of corporate firm types with
in a freed society. Corporate firms would identify themselves as such to libertarian principles:
potential creditors, who would thereby understand that if the firm defaulted
on a loan, they could not go after the personal assets of its shareholders. My view is that corporations are
Knowing these limitations, the creditor would be well within its rights to essentially compatible with libertarianism.
deny an extension of credit, raise the interest rate to compensate for a As for voluntary debts being limited to
perceived increase in risk, or negotiate that a portion of the personal assets the corporation’s assets; this is no
of the corporation's managers or officers be included as collateral. There is problem since the creditor knows these
no fraud or private property rights violation in this situation, therefore there limitations when he loans money. What
is nothing truly un-libertarian about a corporate model. The stickier issue, about limited liability for torts or crimes?
however, is limited liability for torts. To reiterate, this simply shields As mentioned, the person directly
shareholders from torts committed by other employees while on the job or responsible for a tort or crime is always
using the company's assets. It should be made very clear that this in no way liable; sometimes the employer (which is
alleviates the legal liability of those who actually commit the torts, but often a corporation) is also liable for the
rather insulates the owners of the firm not directly involved with said tort employee’s actions, via respondeat superior.
from legal recourse. However, if it is found to be the case that a CEO or Who else should be responsible? In my
other corporate officer committed a tort, then they, of course, would be view, those who cause the damage are
held responsible. In a free market society, this would not be a unique responsible. Shareholders don’t cause it
feature of corporations, but would apply for any owner of a firm whose any more than a bank who loans money
employee perpetrated a tort absent his involvement. For example, suppose to a company causes its employees to
John is a proprietor of a pizzeria and his employee Fred crashes a company commit torts. The shareholders give
vehicle into Sue in the course of a pizza delivery. Should John be held liable money; and elect directors. The directors
for Fred's negligence? Of course not. In a libertarian society, no person appoint officers/executives. The officers
would ever be held liable for the actions of another (absent a contract hire employees and direct what goes on.
stipulating otherwise). It is silly to think that just because someone else Now to the extent a given manager orders
commits a tort with your property, that you would somehow be at least or otherwise causes a given action that
damages someone, a case can be made
that the manager is causally responsible,
185 Hessen, ibid.
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 A SPONTANEOUS ORDER THE CORPORATION

jointly liable with the employee who whilst maintaining many of the corporation's organizational benefits.
directly caused the damage. It’s harder to
argue the directors are so directly
responsible, but depending on the facts, it Internal Checks on Corporate Management
could be argued in some cases. But it’s
very fact specific. Perhaps the rules on
causation should be relaxed or modified, What should first be mentioned is that small investors in a firm will
but this has nothing to do with there likely understand that, being small, they have little say in the direction the
being a corporation or not–for the laws firm takes. Thus, if they do not like how a given corporation operates, then
of causation should apply to any manager they may refrain from investing in it. Likewise, if they are already invested
or person of sufficient influence in the and do not care for the direction the firm is heading, they may sell their
organization hierarchy, regardless of legal shares and invest elsewhere (or nowhere at all). If shareholders are buying
form of the organization (that is, whether or selling shares at substantial levels, this will convey important signals to
it’s a corporation, partnership, sole the managers in the form of rising or falling share prices. The price of a
proprietorship, or what have you).186 stock reflects an equilibrium, however fleeting, of the current state of
market demand - that is, the aggregation of millions of individuals' differing
levels of desires and willingness to pay for this stock – and the
The Principal-Agent Problem corresponding supply of such stock. If speculators suddenly come to
market looking to heavily purchase stock, they will initially purchase shares
at the prevailing market price. As they purchase more, however (technically,
A common criticism of the corporation is that because the as they satisfy sell orders on the stock exchange), the number of people
separation of ownership and control is so wide, the conduct of the firm's willing to sell the stock at that prevailing market rate declines, and the only
managers will tend to stray further from the interest of the shareholders ones holding more of that stock are individuals demanding more money in
than other types of firms whose managers comprise the entire set of exchange for them. Now, in order to purchase more stock, these optimistic
owners. This critique is commonly referred to as the "Principal-Agent speculators must purchase them from individuals with greater reservation
Problem." Such a problem exists when a "principal" delegates powers to an demand than prior. Thus, with the elimination of those with lower
"agent" who has access to greater amounts of and/or more accurate reservation demands, the “market price” the stock would fetch increases.
information (a.k.a. asymmetric information) than the principal and whose The opposite is true too: Market actors looking to unload their stock on the
interests are not perfectly aligned with said "principal." In the case of a market will satisfy all the buy orders, and the price they receive for their
corporation the "principals" are the shareholders and the "agents" are the stock will continue to decline. Generally speaking, substantial “purchases”
managers and officers of the firm. Because information is typically of shares will result in increasing share prices whereas substantial “selling”
asymmetric in favor of the agents, it is said that it is difficult for the will tend to result in decreasing share prices.
principals to hold them accountable. Remember, the only reason the Perhaps the most visible defense against corporate mismanagement
principals delegate power to agents in the first place is because they have is the Board of Directors. The Board of Directors are typically comprised
neither the time nor the expertise to manage said powers to a satisfactory of experienced managers and experts in fields related to the given
degree of competence. So too, and for the same reasons, would it be corporation's industry, and serve as an internal auditing group charged with
difficult for the principals to monitor and hold accountable the agents for ensuring shareholder interests are not being compromised by poor
any risky or detrimental behavior. Such behavior may include the doling out managerial practices. The members of the board thus owe their tenure to
of oversized bonuses, perks, expensive company cars, private jets, excessive the continued satisfaction of the shareholders they represent. The Board of
staff, etc. However, varying internal and external control mechanisms have Directors also establishes major company policies. These may include but
developed to mitigate the negative impact of the aforementioned concerns are not limited to the hiring and firing of executives, setting dividends, and
determining executive compensation.187
186 Stephan Kinsella, "Corporations and Limited Liability for Torts," in Mises
187 As a side note, recall that shareholders voluntarily and explicitly provide their
Economics Blog (Ludwig Von Mises Institute, September 10, 2008).
<[Link] resources to these organizations for their management, whereas the State requires no
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 A SPONTANEOUS ORDER THE CORPORATION

If a prospective business decision is large enough, a corporate firm to retain a high position of authority. For example, if a given CEO becomes
may even hold a shareholder vote on it. Shareholders can, of course, mail in frivolous with company funds purchasing lavish company jets, cars, and
their votes, and they are counted per share owned – not per person – unlike frequenting five star restaurants, then the Board of Directors may decide to
the case in most cooperatives. terminate him and offer his job to the CFO or whomever else they deem
A corporation may be set up in such a way that its managers and suitable.
officers receive bonuses for good performance. This serves to more closely
align the interests of the managers with shareholder interests. Officers,
managers, and other employees may also be given company stock or stock External Checks to Corporate Management
options. This solution is obvious, as the more stock a manager has, the less
separation there is between ownership and control; that is, the more a
shares a manager holds, the more aligned his interests will be with other External competition in the market is perhaps the most obvious
shareholders. The interests, of course, being to safely and securely and visible factor regulating corporate management. If a firm is unable to
maximize the corporation's profits. This does not mean managers will not keep up with changing consumer demand or is unable to match falling
take any risks or even that they should not, but rather that such risks will be competitor prices for its products/services, then it will lose market share. If
taken with great care and caution. In other words, one is less inclined to be this trend is not stopped, it will be reflected by a decrease in its share price.
as deliberate with the disposal of other people's money and property than Share prices communicate important signals to market actors outside of the
he is with his own. Thus, when the manager becomes subject to personal firm as well. For instance, falling stock prices may invite investors or
losses for the falling of company profits, then he will tend to be more competitors to purchase a majority of a given firm's shares and institute
prudent in his decision making. overhauling measures which involve a restructuring of management. This
Large banking institutions or other venture capitalists may purchase process is commonly referred to as a "hostile takeover." Once the firm has
substantial equity in various corporations, and thus wield considerable been restructured to the satisfaction of the new majority shareholders, they
regulatory power over their strategic operations. Moreover, some may then decide to sell their shares for a substantial profit. These investors,
shareholders may pool their resources and invest as a "block" yielding them often referred to as "corporate raiders," essentially act as organizational
considerable influence over the firm's management as well. Such blocks handymen revitalizing the productive capacities of various waning firms.
may form around shareholders who share common interests or ideas as to A bank may also temper corporate policy by threatening not to
what direction the given firm should take. Thus corporate managers will renew a recurring loan in cases where it perceives managing practices to be
have many checks and balances to contend with when running the firm. excessively risky or out of sync with market trends. Mises provides a cogent
The combination and degree of these restrictions will tend to evolve and response to the "separation of ownership and control" criticism of the
modify according to what configuration is most efficient. After all, corporation:
managers do require some discretion to be efficacious lest an excess of
constraints hinder their ability to perform the very functions placed in their It is asserted that the corporation is
charge. operated by the salaried managers, while
Last, but not least, is the potential for a manager or officer to lose the shareholders are merely passive
his job to a subordinate if he is seen as being reckless or incompetent. In spectators. All the powers are concentrated
other words, there is an internal market for managers. It is not sufficient to in the hands of hired employees. The
make it to the top; one must also maintain considerable performance levels shareholders are idle and useless; they
harvest what the managers have sown.
such explicit sanction. Instead, it seizes the resources of its citizens at the threat or
This doctrine disregards entirely the role
application of violence regardless of consent and exercises jurisdiction over the that the capital and money market, the
property of others; property that it has neither legitimate claim nor authority over as stock and bond exchange, which a
States never acquire said property via original appropriation/homesteading or pertinent idiom simply calls the 'market,'
voluntary exchange. Corporate entities, on the other hand, would have to persuade plays in the direction of corporate
investors to invest and could only rightfully exercise control over resources they
acquired through peaceful means. Finally, shareholders may at any time withdraw
business. The dealings of this market are
their funds without legal consequence. In other words, the difference is between branded by popular anticapitalistic bias as a
voluntary and involuntary association.
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hazardous game, as mere gambling. In fact, of the ownership of a considerable part or

the changes in the prices of common and of the greater part of its stock and whom
preferred stock and of corporate bonds are part of the public scorned as promoters
the means applied by the capitalists for the and profiteers.188
supreme control of the flow of capital. The
price structure as determined by the
speculations on the capital and money Limitations on the Size of a Firm
markets and on the big commodity
exchanges not only decides how much
capital is available for the conduct of each A common objection leveled against the corporation, and more
corporation's business; it creates a state of broadly against capitalism, is the possibility that one firm may acquire a
affairs to which the managers must adjust monopoly on an essential resource. Murray Rothbard demonstrates,
their operations in detail. however, that firms face natural limits on their size due to the calculation
problem, which, up until that point, was exclusively applied as a critique of
The general direction of a corporation's socialism. The calculation problem, however, applies to any resource or
conduct of business is exercised by the good that has no market price regardless of the overarching economic or
stockholders and their elected mandataries, political structure directing its use. If a given type of good, say oil, is owned
the directors. The directors appoint and by only one entity it can by definition have no market price. Market prices
discharge the managers. In smaller are derived through a bidding process which occurs in trade. Thus, if a
companies and sometimes even in bigger good is being exclusively utilized by one entity, by definition it is not being
ones the offices of the directors and the traded and therefore cannot develop such a market price. Without knowing
managers are often combined in the same the market price of a good, it then becomes virtually impossible to
persons. A successful corporation is determine whether or not it is being employed efficiently189 . In other
ultimately never controlled by hired words, if one were to own the entire amount of a given good he would have
managers. The emergence of an no objective base of reference to determine the opportunity costs of
omnipotent managerial class is not a employing it in any given manner. The resulting inefficiencies would
phenomenon of the unhampered market ultimately hamper his profit margin and may even lead to substantial losses.
economy. It was, on the contrary, an Thus, a given firm's size would ultimately be limited by the economic
outgrowth of the interventionist policies necessity for an external market to exist for all of the goods used in its
consciously aiming at an elimination of the production processes. Peter Klein expounds upon this limitation to firm
influence of the shareholders and at their size:
virtual expropriation. In Germany, Italy,
and Austria it was a preliminary step on Rothbard's account begins with the
the way toward the substitution of recognition that Mises's position on
government control of business for free socialist economic calculation is not
enterprise, as has been the case in Great exclusively, or even primarily, about
Britain with regard to the Bank of England socialism, but about the role of prices for
and the railroads. Similar tendencies are capital goods. Entrepreneurs allocate
prevalent in the American public utilities. resources based on their expectations
The marvelous achievements of corporate about future prices, and the information
business were not a result of the activities
of a salaried managerial oligarchy; they 188 Mises, "The Market,” Human Action, 306-07.
were accomplished by people who were 189 Efficiency as measured in terms of profits or losses – that is, efficiency relates to
connected with the corporation by means whether transforming a good in a certain way has made it more valuable in the eyes
of the consumer than it was prior.
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 A SPONTANEOUS ORDER THE CORPORATION

contained in present prices. To make the need for external markets for all
profits, they need information about all internally traded goods. In other words,
prices, not only the prices of consumer no firm can become so large that it is
goods but the prices of factors of both the unique producer and user of an
production. Without markets for capital intermediate product; for then no market-
goods, these goods can have no prices, based transfer prices will be available, and
and hence entrepreneurs cannot make the firm will be unable to calculate
judgments about the relative scarcities of divisional profit and loss and therefore
these factors. In any environment, then – unable to allocate resources correctly
socialist or not – where a factor of between divisions. Of course, internal
production has no market price, a organization does avoid the holdup
potential user of that factor will be unable problem, which the firm would face if
to make rational decisions about its use. there were a unique outside supplier;
Stated this way, Mises's claim is simply conceivably, this benefit could outweigh
that efficient resource allocation in a the increase in 'incalculability.'191 Usually,
market economy requires well- however, the costs from the loss of
functioning asset markets. To have such calculation will likely exceed the costs of
markets, factors of production must be external governance.192
privately owned.
Absent the State, the corporation is no threat to the free market.
Rothbard's contribution, was to generalize With the advent of the corporation, the general consumer is given the
Mises' analysis of this problem under added option to purchase equity in the firm regardless of his interest in the
socialism to the context of vertical products or services it may offer. This serves as a decentralized mechanism
integration and the size of the to fluidly and efficiently allocate capital across the market. The resulting
organization. Rothbard writes in Man, added avenue for consumer input in the market will then enable it to more
Economy, and State that up to a point, the accurately adapt itself to the changing tides of consumer demand. Finally,
size of the firm is determined by costs, as there is simply no inherent characteristic of a corporation that is anti-
in the textbook-model. However, 'the libertarian. Creditors that are not comfortable with an institution whose
ultimate limits are set on the relative size managers and shareholders cannot be held personally liable for debts will
of the firm by the necessity for markets to simply not extend credit, and anyone who perpetrates a tort will still be held
exist in every factor, in order to make it liable for damages. Thus, any attempt to impede the formation of a
possible for the firm to calculate its corporation would be an attempt to limit the freedom of contract which is
profits and losses'190 itself sacred in a free society. If the objection is that corporations are
economically inefficient and may only be propped up by the State, then
.....The use of internally traded their existence in a free market would be an impotent one. Whatever the
intermediate goods for which no external case may be, only the most efficient institutions will thrive.
market reference is available thus
introduces distortions that reduce
organizational efficiency. This gives us the
element missing from contemporary
theories of economic organization, an 191 On the inability for firms to economically calculate their internal opportunity costs,
upper bound: the firm is constrained by
see Rothbard, “Particular Factor Prices and Productive Incomes,” Vertical
Integration and the Size of the Firm, ibid, 614.
190 Rothbard, “Particular Factor Prices and Productive Income,” Man, Economy, and 192 Peter Klein, “Entrepreneurship and Corporate Governance,” The Capitalist and the
State, 599. Entrepreneur (Auburn: Ludwig Von Mises Institute, 2010), 33.
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 GETTING THERE

Agorism/Counter-Economics

Chapter Fifteen In an environment where the most innocuous transactions are

regulated and subject to licensure and permit requirements, agorism
provides some much needed relief. Agorism and counter-economics are
GETTING THERE fairly interchangeable concepts which have to do with the study and
practice of all peaceful human action which is forbidden by the State. More
specifically, agorist activities tend to be associated with black or grey market
THE BULK OF this work has been dedicated to demonstrating why activities, i.e., economic transactions which are non-compliant with State
free market anarchism is superior both ethically and economically to any regulations or prohibitions. This could include anything from selling
possible social alternatives. Once the truth of this perspective is established, cannabis to running a lemonade stand without a permit. Such activities are
the question becomes one of means. How do we bring about the libertarian used not only to highlight the merits of a truly free market, but also save the
society we desire? Admittedly, there is no objectively best way to determine entrepreneur the expense of paying taxes, while having the additional
this, however, in the course of this chapter, methods will be delineated benefit of depriving the State of extra revenue.
which are optimally suited to achieving liberation. Such methods will be The beauty of agorism is that it takes free market ideas from the
separated into five major categories: agorism & counter economics, ideological realm and brings them to life. It provides those people too
hacktivism, education & outreach, peaceful parenting, and the formation of impatient to wait for the State's demise an avenue to live and associate
free communities. freely now. It also serves as an effective and popular form of passive
Many critics will write off the idea of free market anarchism as resistance. There are many individuals who engage in these practices as a
Utopian, unrealistic, or even dangerous. Ironically, such criticisms are regular part of their everyday lives without realizing their implications.
logically and empirically better aimed against the State. Though the Thus, by informing these people of the wide ranging benefits of their
advocates of such a libertarian society generally promote it as a result of activities, one may be able to easily segue into a conversation regarding the
their universal stance against aggression, they are under no delusion that merits of free markets. It is much easier to demonstrate the benefits of such
physical conflict would disappear. Rather, given the existence of scarce a system to those who live it and likewise to those entrepreneurs who have
goods and the fact that humans are self-interested, they believe that a purely first-hand experience with onerous State regulations and taxes.
free society is best equipped to harmonize and coordinate human action for In the pursuit of streamlining such agorist activities, the market has
maximum gain. Conversely, free market anarchists recognize that it is the produced some astounding innovations of which we will cover the two
State, in all of its forms, which perverts and obstructs the economic most prominent: cryptocurrencies such as Bitcoin and anonymous online
guidance of the invisible hand, and that it is the advocates of the State who markets such as the Silk Road. Digital cryptocurrencies provide an
naively believe that its agents are benevolent, competent, and altruistic. individual with an array of benefits unlike anything the market actor has
Thanks to insights made by the likes of Mises, Rothbard, and Hoppe, one ever experienced. They provide a means by which one may transfer wealth
may rest assured that even if such benevolent and competent individuals securely, anonymously, and with virtually zero transaction costs. Naturally,
occupied every State office, they would still have no rational economic basis this allows one to safely avoid taxes in the course of a transaction as there is
to determine the optimal array of services, the degree to which they should no means by which said transaction may be traced backed to him. More
be produced, the method of their production, and how they should be importantly however, the use of such digital currencies normalizes the idea
allocated. In the absence of a rational rebuttal to the merits of free market of using private currencies to the general public. The State's status as the
anarchism, some may object: "No such society has ever existed!" – to which sole producer of money is one of its greatest sources of legitimacy and
the appropriate response is: "Progress is by its very nature unprecedented.” power; thus, the proliferation and expanding use of private currencies
constitute effective means by which State rule may be peacefully
undermined.
Likewise, the advent of anonymous online markets allows one to
transact in a global market, thereby enhancing the value of agorist activity

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and rendering international borders ever more superfluous. Above and and synthesize liberty activism, unrestricted access to the Internet is integral
beyond agorist ventures, however, even legal innovations may sometimes to general human progress. If we wish to effectively protect our liberties, we
alleviate dependency on State services and should likewise be encouraged. must likewise protect the World Wide Web from State encroachment.
For instance, the development of E-mail has displaced to a large degree the
monopolized service the United States Postal Service has on the delivery of
first class mail.193 Education/Outreach
Agorist activities, as well as legal market innovations, demonstrate
tangible and readily-understood benefits of the marketplace. With their
proliferation, ever more people will begin to wonder to what extent the Education is another key component to abolishing the State and
market may be extended, and, conversely, question to what degree the State organizing a free society. It is not sufficient for one only to have an
itself is necessary. In truth, the State is always in a precarious position, as it understanding of the social problems which plague society; he must have an
requires the presence of a market in order to perpetuate its parasitic intimate understanding of superior alternatives as well. Most people are
existence. Conversely, the market is at the same time a threat to State aware of the complex, social problems that persist today ranging from
legitimacy as it provides a productive contrast to the State's inner workings. poverty, famine, and disease, to war, inflation, and terrorism. Although they
In distinct contrast, the market has no such need for the State. It may exist, may believe the State is not treating such issues competently, they are
in fact, much more vibrantly with no State at all. Once this truth is tragically unaware of any viable alternatives. The masses have been
uncovered, there will be no turning back. The State will be just another inundated with propaganda their entire lives from the public schools in
embarrassing blip in human history, similar to chattel slavery. which they were stuffed as children to the State controlled, nationalistic
mass media opinions they ingest as adults. The predominate notion of
Political Reform is sold to the public as their only redress of grievances,
Hacktivism while whispers of State abolition are immediately discarded as absurd and
dangerous.
Despite attempts by defenders of the State to undermine and
Hacktivism is simply the use of computers and computer networks discredit anarchist ideas, libertarian anarchists retain the advantage of
to promote political ends. Hacktivist groups, like Anonymous, have been having reason on their side. Think-tanks like the Ludwig Von Mises
used extensively to combat government measures to censor and restrict Institute and The Property and Freedom Society have served the end of
access to the Internet. Such groups also have provided private citizens with advancing radical freedom by proliferating and expanding upon libertarian
the means to obstruct government surveillance over their online activities. ideas in the academic realm, while defending them from the most
As the police state grows, these groups of individual hacktivists will be sophisticated critiques. More populist mediums such as Facebook and
invaluable to maintaining communication networks amongst various liberty YouTube have also enabled many libertarians/anarchists to introduce the
activists while, at the same time, denying government surveillance and masses to the ideas of liberty, effecting an enormous swell in number. This
tracking of their activities. Hacktivist groups, like Anonymous, have also trend is expected to continue as the reliance on State regulated mass media
shown wide support for journalistic organizations like Wikileaks, which and propaganda is continually undermined by the common man's access to
dedicate themselves to making classified government information available the virtually endless depths of knowledge present on the Internet. Beyond
to the public. The organization of these hacktivist groups tends to be this, younger generations, who feel more at home online than watching
decentralized and amorphous, making them very difficult to target for television, will demonstrate the superiority of free access to the marketplace
centralized command-and-control State enforcement agencies. of ideas regarding news and opinion on the Internet. Moreover, the
It would behoove the liberty community, then, to form alliances growing popularity of home-schooling promises to curtail State control
with such organizations as well as recruit members who possess the skills to over the minds of the youth.
engage in such activism. One of the most dangerous threats to State power Though the Internet does provide an excellent medium for
is the Internet itself. Thus, protecting it as an open and accessible resource providing copious amounts of information to billions of people, there are
for all is of paramount importance. More than simply a tool to coordinate still advantages to reaching out to others in a face-to-face manner. Offering
a meeting presence at various popular events or other public places may
193 “Privatizing the US Postal Service,” Downsizing the Federal Government, Cato Institute help others experience these ideas in a more tangible way. In the transition
[Link]
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 A SPONTANEOUS ORDER GETTING THERE

from any degree of Statism to libertarianism, there are bound to be nonproductive and
questions and spiraling conversations that cannot be addressed in reading noncontractual property
Murray Rothbard's articles in PDF; a living, breathing libertarian discussing acquisitions. The class
and deconstructing social premises can catapult a person beyond where consciousness must be low,
their own capacity for curiosity and intellectual courage would have taken undeveloped, and fuzzy. Only as
them. Having personal interactions with others helps humanize the ideas of long as this state of affairs lasts is
liberty, and may be cause for an intrepid mind to consider such ideas with there still room for an
greater deliberation. Working with other organizations and people on like- exploitative firm to prosper even
minded causes may also be an effective way to synergize efforts and if no actual demand for it exists.
resources. Additionally, the members of such organizations may themselves Only if and insofar as the
be more open to the ideas of anarchism and free markets as a consequence exploited and expropriated
of camaraderie developed while working on like goals. For the spreading of develop a clear idea of their own
anarchist ideas to be effective, one must sell them not only as rational and situation and are united with
effective, but also humanitarian and inclusive. It must be made clear that other members of their class
the only things precluded are legal privileges. Such a system does not require through an ideological movement
people to work for hierarchical corporations or even to use money. If which gives expression to the
individuals prefer to voluntarily pool their resources and live in money-less idea of a classless society where
communes, then there would be nothing stopping them. In fact, free all exploitation is abolished, can
market anarchy is precisely that system which permits the largest scope of the power of the ruling class be
opportunity for people to live their lives as they see fit. broken. Only if, and insofar as, a
Last, but not least, one must be willing to spread these ideas with majority of the exploited public
patience and empathy if he wishes for them to be well received. At one becomes consciously integrated
point, most libertarians and anarchists were either active or passive into such a movement and
supporters of the State. Thus, showing compassion, empathy, and love for accordingly displays a common
others will do wonders in the way of instilling them with the desire to learn outrage over all nonproductive or
these ideas. Furthermore, living a happy and healthy life will encourage noncontractual property
them to emulate your lifestyle and to discover the virtues which serve as its acquisitions, shows a contempt
foundation. Hoppe deliberates upon the critical importance of spreading for everyone who engages in
the ideas of liberty: such acts, and deliberately
contributes nothing to help make
...more than force is needed to them successful (not to mention
expand exploitation over a actively trying to obstruct them),
population many times its own can its power be brought to
size. For this to happen, a firm crumble.194
must also have public support. A
majority of the population must
accept the exploitative actions as Peaceful Parenting
legitimate. This acceptance can
range from active enthusiasm to
passive resignation. But it must Peaceful parenting may seem peculiar or impertinent in regards to
be acceptance in the sense that a the subversion of Statism, but it is of grave importance. It entails a
majority must have given up the complete and holistic parenting style, but this focus will be on its primary
idea of actively or passively
resisting any attempt to enforce
194 Hoppe, Private Property, 127-128.
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 A SPONTANEOUS ORDER GETTING THERE

precept of non-violence against children. This includes smacking, spanking, establishing a community of people who live accordingly. The methods
hitting or threats made thereof. Such violent parenting tactics teach a child employed by members of the BRLP include education, outreach, and the
that "might makes right" and primes them for State subjugation which promotion of agorism and peaceful parenting. The interest and
operates under mirrored premises. There is no other time in life where one membership of the BRLP and other similar liberty communities have
is more susceptible to influence than when he is a child. Thus, it is critically continued to grow as they offer comfortable safe havens from the more
important that extra care be taken not to instill our children with ideas or insufferable aspects of the State. Additionally, these communities have
furnish them with experiences that aligns the child's personality to that of a proven to be highly conducive to synergizing the efforts of like-minded
drone or soldier, able and willing to serve an arbitrary authority at the activists while, at the same time, adding credibility to their cause with the
soonest provocation. Instead, rearing children as peers encourages them to increase in visible participation.
inquire more deeply about the world around them and their place in it. This The members of these communities have often left their extended
curiosity allows them to improve their understanding of the environment families and established careers in order to take part in the high and noble
and to better grapple with their environment in such a way that it may be cause of liberty. They are willing to trade temporary material comfort and
more transformed to their liking. security for the opportunity to achieve a life aimed at something greater
Encouraging inquiry, negotiation, and discussion may not be than mere sustenance. These staunch and passionate individualists are the
conducive to dominating or controlling children, but it will greatly enhance greatest philanthropists of our time. One is reminded of a quote attributed
a child's critical thinking and reasoning abilities. When children grow up in to Samuel Adams: “It does not require a majority to prevail, but rather an
peaceful and free environments, they will view the State with great irate, tireless minority keen to set brush fires in people's minds.”
skepticism and contempt. The State will be nothing more to them than an Though the above methods may be the most effective means to
anachronism or a morbid joke. As the number of individuals who had been achieving liberty, this in no way suggests they are the only ones.
“peacefully reared” grows, the State's power and legitimacy will Encouragement should be given to anyone to promote liberty because its
correspondingly fade. These individuals will likely be among the more avid presence or lack thereof deeply impacts every aspect of our lives. We live in
and vociferous promoters of the libertarian philosophy for two reasons: (1) a world with incredibly diverse and beautiful individuals, whose value and
They will not be as conditioned as their counterparts to accept edicts given variety are hampered by the use of systemic aggression. The fight against
by arbitrary authority figures, and the fear emanating from the State's aggression – which is the fight for liberty – is the most important one of
threats will accordingly be less effective against them; and, (2) they will our time and will continue to be until liberty has prevailed. Ending the story
already have experienced how free associations organize and form, and the of our enslavement should be top priority for those seeking to liberate man
benefits they entail. from all manners of oppression, subjugation, and exploitation.
The question of the proper or improper use of violence warrants
the highest level of scrutiny as it presents the greatest potential danger to
Forming Free Communities human progress. If one is still critical of free market anarchy, then they
should be encouraged to evaluate the State with an equal level of
skepticism. Make no mistake; the cause of liberty will get darker before the
For those who have difficulty dealing in abstracts, experiencing a proverbial dawn. However, there is great cause for hope. Now more than
freed community may be conducive to understanding the merits of liberty. ever, we are connected with one another socially and economically. We are
Forming such communities allows insiders a valuable opportunity to live discovering innovative ways to streamline communication and break down
more freely while they hasten the collapse of the State. The most renowned cultural barriers and languages, which prevent us from connecting with one
examples of such communities include the Free State Project in New another. We now have the distinct honor and privilege to usher in a new era
Hampshire and the Blue Ridge Liberty Project in Asheville, North Carolina, of enlightenment, peace, and prosperity. All we must do now is choose
however other, similar communities are springing into existence more whether or not we want to be passive observers or active participants in this
frequently than ever. revolutionary phase. Such participation can entail something as simple as
The Blue Ridge Liberty Project is significant in that its goals and choosing to live your own life freely as Albert Camus once opined: “The
methods are entirely in line with those presented herein. The Blue Ridge only way to deal with an unfree world is to become so absolutely free that
Liberty Project (BRLP) was established with a twofold mission: to spread your very existence is an act of rebellion.”
the ideas of free market anarchism and peaceful parenting, while

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