Power and Market

A Libertarian’s Guide to Austrian Economics in Regards to Power

I intend to detail my reading of Power and Market, the final two sections of Murray N. Rothbard’s greatest treatise on economics. This is the most influential work of economics that he produced in his incredibly prolific career as an Economist, Historian, Political Theorist and Activist, and arguably a Comedian. I hope that this work will eventually go down in history as the most highly regarded work in the very field of economics that it is helping to reshape. I hope I can do it justice.

M, E, S, w/ P and M

Keynes who?

My goal here is to condense Power and Market into a series of short posts that allows you all to absorb the valuable information it contains, in a time saving manner, and to produce an archive for future readers. As always, I’m open to suggestions and insights!

– Adam Alcorn

Chapter 1, Part 1 of 2. Power and Market by Murray Rothbard

If I had to guess the way in which Rothbard would have begun his analysis of power and market, I would guess something along the lines of a chapter entitles “Defense Services on the Free Market,” and we would have been right. So here it goes.

Intro to the Intro…

Fittingly, Rothbard begins by exposing mainstream economists as negligent in their slighting of the “deeper implications” of the free market economy as would exist in a truly free economy. Mainstream economists have refused to do so, according to Rothbard. This is where Power and Market must come in, it must be the text “to inquire into the conditions and the nature of the property ownership that would obtain in the free society.” Rothbard then identifies the certainly non-controversial implication that a system of property rights is essential to an economists understanding of the structure of the free market.

What Property Structure Does he Mean?

Economists have “almost invariably and paradoxically” worked by a sort of naïve, uninvestigated law of economics that dictates the use of government force to keep the market free. Demonstrating brilliance in debate Rothbard here rephrased all of mainstream economics thereby revealing its study of “free markets” to have been an actual contradiction in terms. A study of government economics and unfree markets.

Why is this interesting, you might ask?

A supply of defense services on the free market would mean maintaining the axiom of the free society, namely, that there be no use of physical force except in defense against those using force to invade person or property. This would imply the complete absence of a State apparatus or government; for the State, unlike all other persons and institutions in society, acquires its revenue, not by exchanges freely contracted, but by a system of unilateral coercion called “taxation.”

Because mainstream economists do not study free markets!

The Theoretical Foundations for Free Market Defense Services and Common Objections

Providing a brief overview of a primarily Lockean homesteading/exchange model of property rights, Rothbard asserts that it is this “…firm property right in one’s own self…” that results in the “property structure” foundational to free markets. In order to provide private defense services the above principles must be upheld in a free society.

“That there be no use of physical force except in defense against those using force to invade person or property.”

The State is obviously not qualified, so what is? Rothbard provides two conditions. These institutions must be voluntarily funded, not tax supported, and they must claim any “compulsory monopoly of police or judicial protection.”

Rothbard is simply demonstrating that all goods and services are subject to the failures of central planning and government monopoly, law and order are no exceptions.

“Defense services, like all other services, would be marketable and marketable only.” [Emphasis Added] – Murray N. Rothbard, Power and Market

Rothbard demonstrates the illegitimacy of laissez-faire advocates based on this theoretical concept. “For a laissez-faire government would necessarily have to seize its revenues by … (taxation).”

Previewing his refutations of laissez-faire advocates, Rothbard responds to the common object that “since a free market of exchanges presupposes a system of property rights, therefore the State is needed ti define and allocate the structure of such rights.” As derived above from the self-ownership principle the development of a system of property rights “can and will be done by the use of reason and through market processes themselves;” and with typically Rothbardian wit, he continues “any other allocation or definition would be completely arbitrary and contrary to the principles of the free society.”

Another common objection is that the service of defense is so crucial to human existence that it must be State produced. Rothbard identifies this as an extension of the mistake made my many classical economists, to “consider goods and services in terms of large classes.” Rothbard refutes this notion with the modern economic understanding of marginal units of goods and services. Any good or service could be a precondition of a modern market if viewed in a macro sense.

“Is not land room vital, or food for each participant, or clothing, or shelter? Can a market long exist without them? And what of paper…Must all these goods and services therefore be supplied by the State and the State only?”
The following refutation is in regards to the laissez-faire advocates objection that competing legal systems are impractical. However Rothbard points out the constant interactions, judicial and otherwise between citizens of different nations.

“The Argentinian court, and its decision is recognized by the Ceylonese courts – and vice versa if the Ceylonese is the aggrieved party. Although it is true that separate nation-States have warred interminably against each other, the private citizens of various countries, despite widely differing legal systems, have managed to live together in harmony without having a single government over the.”

Accepting this logic, backed up by historical reality leads one to Rothbard’s conclusion,

“that while laissez-faireists should by the logic of their position, be ardent believers in a single unified world government, so that no one will live in a state of ‘anarchy’ in relation to anyone else, they never are.”



Chapter 1, Part 2: What Might a Free Market Defense System Look Like? 

“Let us, then examine in a little more detail what a free-market defense system might look like.”

Having demonstrated the failures of the governmental (monopolistic) defense forces we call the Justice System, Rothbard follows through with the task of proposing an alternative. I will simply restate the disclaimer that Rothbard provided, he said

“It is, we must realize, impossible to blueprint the exact institutional conditions of any market in advance, just as it would have been impossible 50 years ago to predict the exact structure of the television industry today. However, we can postulate some of the workings of a freely competitive, marketable system of police and judicial services.”

And that is exactly what the remainder of Chapter 1 is about.

Rothbard believes the most likely defense and judicial services would be provided on an “advance subscription basis” with police able to respond immediately. In the way that Adam Smith’s invisible hand directs entrepreneurs, competition would “undoubtedly arise” in this market making the likelihood of monopoly very unlikely. Rothbard also mentions the lack of territorial monopoly that would make it next to impossible for a State to arise out of a purely-free market.

What About the Warlords?

Rothbard notes that it “seems likely” for property insurance agencies to offer police and judicial services because it is “to their direct advantage to reduce the amount of crime as much as possible.”
To refute a common objection, Rothbard theorizes that Defense Agency X representing Client X have a dispute in which both courts rule in opposition to each other. In this instance, due to the law of repeated dealings and the high cost of aggressive violence a “privately competitive Appeals Court of a type that will undoubtedly spring up in abundance on the market to fill the great need for such tribunals.”

“Indeed, in the basic legal code of the free society, there probably would be enshrined some such clause as that the decision of any two courts will be considered binding, i.e., will be the point at which the court will be able to take action against the party adjudged guilty. Every legal system needs some sort of socially-agreed-upon cutoff point, a point at which judicial procedure stops and punishment against the convicted criminal begins.”

This convention would arise through the likelihood of Agency X and Agency Y having a pre-arranged arbiter that they and their clients have agreed to accept as final ruling. All of this of course would be voluntarily agreed upon in the terms of the contract with an insurance agency. It is likely that these competitive courts would have repetitive dealings and it would be mutually beneficial to follow the agreed-upon rules in the contract, or they would quickly lose favor as fair arbiters of justice.
Everything we know about market forces make the idea of competing warlords more unlikely. It is only the State that has nothing to worry about in terms of profit and loss. It is only the State that can maintain a monopoly on force, and it is only the State that can afford to defend such a monopoly.

Checks and Balances

In further refutation of the battling warlords objection Rothbard begins with dispelling a popular rumor:

“It is very generally assumed that those who postulate a stateless society are also naïve enough to believe that, in such a society, all men would be “good.” and no one would wish to aggress against his neighbor. There is no need to assume any such magical chance in human nature. Of course, some of the private defense agencies will become criminal, just as some people become criminal now. But the point is that in a stateless society there would be no regular, legalized, channel for crime and aggression, no government apparatus the control of which provides a secure monopoly for invasion of person and property. When a State exists, there does exist such a built-in channel, namely the coercive taxation power, and the compulsory monopoly of forcible protection.”

I could not paraphrase the previous paragraph and do it any justice, so I had to quote the man himself.

To support his assertions Rothbard argued that throughout history, it took “State rulers centuries to establishing a functioning State apparatus.”

The supposed checks and balances provided by the United States government “can scarcely be considered checks at all, since every one of these institutions is an agency of the central government and eventually of the ruling party of that government.” Rothbard explains that the profit and loss forces of the purely-free market, in consistency with the other postulation, that violence is the most expensive form of dispute resolution, would provide real checks and balances via the free market, “i.e., the existence of freely competitive police and judicial agencies that could quickly be mobilized to put down any outlaw agency.” If for instance this would fail, as Rothbard notes, the worst possible outcome would be the rise of another State, but the experiment of a stateless society has nothing to lose since the “State is what we have now.”

In summary Rothbard offers this nail in the first coffin of private defense services:

“A truly free market is totally incompatible with the existence of the State, an institution that presumes to “defend” person and property by itself subsisting on the unilateral coercion against private property known as taxation. On the free market, defense against violence would be a service like any other, obtainable from freely competitive private organizations. Whatever problems remain in this area could easily be solved in practice by the market process.”

 – Adam Alcorn

@AdamBlacksburg

aalcorn@vt.edu

Next Installment: Power and Market, Chapter 2: Fundamentals of Intervention

*Every quote, unless otherwise attributed, comes from Rothbard’s Power and Market.

 

 

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