DemocracyThe God That Failed (51 page)

Hence, Rothbard pointed out, it follows that just as socialism cannot be reformed but must be abolished in order to achieve prosperity, so can the institution of the state not be reformed but must be abolished in order to achieve justice and protection. "Defense in the free society (including such defense services to person and property as police protection and judicial findings)," Rothbard concluded,

would therefore have to be supplied by people or firms who (a) gained their revenue voluntarily rather than by coercion and (b) did not—as the State does—arrogate to themselves a compulsory monopoly of police or judicial protection.... defense firms would have to be as freely competitive and as noncoercive against noninvaders as are all other suppliers of goods and services on the free market. Defense services, like all other services, would be marketable and marketable only.
⁸

⁸
Murray N. Rothbard,
Power
and
Market
(Kansas City: Sheed Andrews and McMeel,1977),p.2.

That is, every private property owner would be able to partake of the advantages of the division of labor and seek better protection of his property than that afforded through self-defense by cooperation with other owners and their property. Anyone could buy from, sell to, or otherwise contract with anyone else concerning protective and judicial services, and one could at any time unilaterally discontinue any such cooperation with others and fall back on self-reliant defense or change one's protective affiliations.

IV

Having reconstructed the myth of collective security—the myth of the state—and criticized it on theoretical and empirical grounds, I now must take on the task of constructing the positive case for private security and protection. In order to dispel the myth of collective security, it is not just sufficient to grasp the
error
involved in the idea of a protective state. It is just as important, if not more so, to gain a clear understanding of how the nonstatist security alternative would effectively work. Rothbard, building on the pathbreaking analysis of the French-Belgian economist Gustave de Molinari,
⁹
has given us a sketch of the workings of a free-market system of protection and defense.
¹⁰
As well, we are in debt to Morris and Linda Tannehill for their brilliant insights and analyses in this regard.
¹¹
Following their lead, I will proceed with my analysis and provide a more comprehensive view of the alternative—nonstatist—system of security production and its ability to handle attacks, not just by individuals or gangs but in particular also by states.

Widespread agreement exists among liberal-libertarians such as Molinari, Rothbard, and the Tannehills as well as most other commentators on the matter that defense is a form of insurance, and defense expenditur
es represent a sort of insurance premium (price). Accordingly, as Rothbard and the Tannehills in particular would emphasize, within the framework of a complex modern economy based on worldwide division of labor, the most likely candidates to offer prot
ection and defense services are insurance agencies. The better the protection of insured property, the lower are the damage claims and hence an insurer's costs. Thus, to provide efficient protection appears to be in every insur
er's own
financial interest. Indeed, although restricted and hampered by the state, even now insurance agencies provide wideranging services of protection and indemnification (compensation) to injured private parties. Insurance companies fulfill a second essential requirement. Obviously, anyone offering protection services must appear able to deliver on his promises in order to find clients. That is, he must possess the economic means—the manpower as well as the physical resources—necessary to accomplish the task of dealing with the dangers, actual or imagined, of the real world. On this count insurance agencies appear to be perfect candidates, too. They operate on a nationwide and even international scale, and they own large property holdings dispersed over wide territories and beyond single state boundaries. Accordingly, they have a manifest self-interest in effective protection, and are 'big' and economically powerful. Furthermore, all insurance companies are connected through a network of contractual agreements of mutual assistance and arbitration as well as a system of international reinsurance agencies, representing a combined economic power which dwarfs that of most existing governments.

⁹
Gustave de Molinari,
The
Production
of
Security
(New York: Center for Libertarian Studies, 1977).

¹⁰
Rothbard,
Power
and
Market,
chap. 1; idem,
For
A
New
Liberty
(New York: Collier, 1978), chaps. 12 and 14.

¹¹
Morris Tannehill and Linda Tannehill,
The
Market
for
Liberty
(New
York: Laissez Faire Books, 1984), esp. part 2.

Let me further analyze and systematically clarify this suggestion: that protection and defense are 'insurance' and can be provided by insurance agencies. To reach this goal, two issues must be addressed. First off, it is not possible to insure oneself against every risk of life. I cannot insure myself against committing suicide, for instance, or against burning down my own house, becoming unemployed, not feeling like getting out of bed in the morning, or not suffering entrepreneurial losses, because in each case I have full or partial control over the likelihood of the respective outcome. Risks such as these must be assumed individually. No one but I can possibly deal with them. Hence, the first question must be what makes protection and defense an insurable rather than an uninsurable risk? After all, as we have just seen, this is not self-evident. In fact, does not everyone have considerable control over the likelihood of an attack on and invasion of his person and property? Do I not deliberately bring about an attack by assaulting or provoking someone else, for instance, and is not protection then an uninsurable risk, like suicide or unemployment, for which each person must assume sole responsibility?

The answer is a qualified yes and no. Yes, insofar as no one can possibly offer unconditional protection, i.e., insurance against any invasion whatsoever. That is, unconditional protection can only be provided, if at all, by each individual on his own and for himself. But the answer is no, insofar as
conditional
protection is concerned. Only
attacks and invasions that are provoked by the victim cannot be insured. Unprovoked and thus 'accidental' attacks can be insured against, however.
¹²
That is, protection becomes an insurable good only if and insofar as an insurance agent contractually restricts the actions of the insured so as to exclude every possible 'provocation' on their part. Various insurance companies may differ with respect to the specific definition of provocation, but there can be no difference between insurers with regard to the principle that everyone must systematically exclude (prohibit) all provocative and aggressive action among its own clients.

As elementary as this first insight into the essentially defensive—nonaggressive and nonprovocative—nature of protection-insurance may seem, it is of fundamental importance. For one, it implies that any known aggressor and provocateur would be unable to find an insurer, and hence, would be economically isolated, weak and vulnerable. On the other hand, it implies that anyone wanting more protection than that afforded by self-reliant self-defense could do so only if and insofar as he submitted himself to specified norms of nonaggressive, civilized conduct. Further, the greater the number of insured people—and in a modern exchange economy most people want more than just self-defense for their protection—the greater would be the economic pressure on the remaining uninsured to adopt the same or similar standards of nonaggressive social conduct. Moreover, as the result of competition between insurers for voluntarily paying clients, a tendency toward falling prices per insured property values would come about.

At the same time, a system of competing insurers would have a twofold impact on the development of law and thus contribute further to reduce conflict. On the one hand, the system would allow for systematically
increased
variability
and
flexibility
of
law.
Rather than imposing a uniform set of standards onto everyone (as under statist conditions), insurance agencies could and would compete against each other not just
via
price but in particular also through product differentiation and development. Insurers could and would differ and distinguish themselves
with respect to the behavioral code imposed on and expected of their clients, with respect to rules of evidence and procedure, and/or with respect to the sort and assignment of awards and punishments. There could and would exist side by side, for instance, Catholic insurers applying Canon law, Jewish insurers applying Mosaic law, Muslims applying Islamic law, and Non-believers applying Secular law of one variant or another, all of them sustained by and vying for a voluntarily paying clientele. Consumers could and would choose, and sometimes change, the law applied to them and their property. That is, no one would be forced to live under "foreign" law; and hence, a prominent source of conflict would be eliminated.

¹²
On the "logic" of insurance see Ludwig von Mises,
Human
Action:
A
Treatise
on
Economics
(Chicago: Regnery, 1966), chap. 6; Murray N. Rothbard,
Man,
Economy,
and
State,
2 vols. (Auburn, Ala.: Ludwig von Mises Institute, 1993), pp. 498ff.; HansHermann Hoppe, "On Certainty and Uncertainty, Or: How Rational Can Our Expectations Be?"
Review
of
Austrian
Economics
10, no. 1 (1997); also Richard von Mises,
Probability,
Statistics
and
Truth
(New York: Dover, 1957); Frank H. Knight,
Risk,
Uncer
tainty,
and
Profit
(Chicago: University of Chicago Press, 1971).

On the other hand, a system of insurers offering competing law codes would promote a tendency toward the
unification
of
law.
The "domestic"—Catholic, Jewish, Roman, Germanic, etc.—law would apply and be binding only on the persons and properties of the insured, the insurer, and all others insured by the same insurer under the same law. Canon law, for instance, would apply only to professed Catholics and deal solely with intra-Catholic conflict and conflict resolution. Yet it would also be possible for a Catholic to interact, come into conflict with, and wish to be protected from the subscribers of other law codes, e.g., a Muslim. From this no difficulty would arise so long as Catholic and Islamic law reached the same or a similar conclusion regarding the case and contenders at hand. But if competing law codes arrive at distinctly different conclusions (as they would in at least
some
cases by virtue of the fact that they represent
different
law codes) a problem would arise. The insured would want to be protected against the contingency of intergroup conflict, too, but "domestic" (intragroup) law would be of no avail in this regard. In fact, at a minimum two distinct "domestic" law codes would be involved, and they would come to different conclusions. In such a situation it could not be expected that one insurer and the subscribers of his law code, say the Catholics, would simply subordinate their judgment to that of another insurer and his law, say that of the Muslims, or
vice
versa.
Rather, each insurer—Catholic and Muslim alike—would have to contribute to the development of intergroup law, i.e., law applicable in cases of disagreement among competing insurers and law codes. And because the intergroup law provisions that an insurer offered to its clients could appear credible to them, and hence a
good,
only if and insofar as the same provisions were also accepted by other insurers (and the more of them, the better), competition would promote the development and refinement of
a body of law that incorporated the widest—intergroup, cross-cultural, etc.—legal-moral consensus and agreement and thus represented the greatest common denominator among various competing law codes.
¹³

More specifically, because competing insurers and law codes could and would disagree regarding the merit of at least
some
of the cases brought jointly before them, every insurer would be compelled to submit itself and its clients in these cases from the outset to arbitration by an independent third party. This third party would not just be independent of the two disagreeing parties, however. It would at the same time be the
unanimous
choice
of both parties. And as objects of unanimous choice, arbitrators then would represent or even personify "consensus" and "agreeability." They would be agreed upon because of their commonly perceived ability of finding and formulating mutually agreeable, i.e., "fair," solutions in cases of intergroup disagreement. Moreover, if an arbitrator failed in this task and arrived at conclusions that were perceived as "unfair" or "biased" by either one of the insurers and/or their clients, this person would not likely be chosen again as an arbitrator in the future.

Consequently, protection and security
contracts
would come into existence as the first fundamental result of competition between insurers for a voluntarily paying clientele. Insurers (unlike states) would offer their clients contracts with well-specified property and product descriptions and clearly defined and delineated duties and obligations. Likewise, the relationship between insurers and arbitrators would be defined and governed by contract. Each party to a contract, for the duration or until fulfillment of the contract, would be bound by its terms and conditions; and every change in the terms or conditions of a contract would require the unanimous consent of all parties concerned. That is, under competition (unlike under statist conditions), no "legislation" would or could exist. No insurer could get away (as a state can) with "promising" its clients "protection" without letting them know how or at what price, and insisting that it could, if it so desired, unilaterally change the terms and conditions of the protector-client relationship. Insurance-clients would demand something significantly "better," and insurers would comply and supply
contracts
and constant
law,
instead of
promises
and shifting and changing
legislation.
Furthermore, as a result of the continual cooperation of various insurers and arbitrators a tendency toward the unification of property and contract law and the
harmonization of the rules of procedure, evidence and conflict resolution (including such questions as liability, tort, compensation, and punishment) would be set in motion. On account of buying protectioninsurance, everyone would become tied into a global competitive enterprise of striving to reduce conflict and enhance security. Moreover, every single conflict and damage claim, regardless where and by or against whom, would fall into the jurisdiction of one or more specific insurance agencies and would be handled either by an individual insurer's "domestic" law or by the "international" law provisions and procedures agreed upon in advance by a group of insurers, thus assuring
(ex
ante)
complete and perfect legal stability and certainty.

¹³
See on this Hans-Hermann Hoppe,
Eigentum,
Anarchie
und
Staat
(Opladen: WestdeutscherVerlag, 1987), pp. 122-26.