Public Goods & Security (Studyblog ATSC Ch 10)

Gustave de Molinari (1819-1912)

Molinari was a French-Belgian economist who in 1849 proposed in a paper, "The Production of Security," that security be out of the hands of monopolistic governments and into the hands of voluntary consumers on the free market. His reasoning was that (1) labor and trade should be free to competition in order to minimize costs to consumers, whereas monopolies [in the traditional, coercive sense of restricted entry] do the opposite, and (2) that consumer interests should win over producers.

These two principles, he wrote, are the most well-established truths in the social science. And that following these principles leads one to see that security, like all other goods and services, should be left on the free market. Molinari went on to say that "Either his is logical and true or else the principles on which economic science is based are invalid."

Conventional Wisdom: Goods that are Public

One way to avoid the above conclusions is to declare that security is a public good and is not compatible with capitalism and its advantageous position in contrast to socialism's monopolistic, economic inadequacies.

Public Goods: Are said to have distinctive characteristics that make them impossible or difficult to produce on the free market and accordingly must be provided by the State. This is because the benefits of these goods cannot be limited to those that directly pay for them, unlike private goods.

Ambiguity is the first problem with public goods theory. Just what qualifies a good as public and not private is subject to debate. Many of the goods that are normally referred to as public have just as many people who would say otherwise. What goods are and are not public is highly disputed.

Is it a Private or Public Good?

Here are some examples from Hoppe...

• Home Garden: Neighbors benefit from it without contributing.
• Street Performer: Those not giving money can benefit.
• Deodorant: Those around benefit without contributing.
• Developing a Nice Personality: (ditto)
• Home Improvement
  

All fit as being called public. Does this then mean they must be nationalized or socialized? They all appear to fit the parameters of public goods but are nonetheless produced on the market as private goods.

What is more; all labeled public goods have at one time or another and to one extent or another been produced privately: e.g., mail, roads, lighthouses, police, detectives, arbitrators, charity, and so on.

The Public Nature of a Good

--- Can be "Good" or "Bad"
--- Is Not a Fixed Constant

• A public good can not only have "positive" but "negative" results on people. E.g., the neighbors might think the home garden is unattractive.
• The "positive" and "negative" value of a given public good can be different with different people.
• This evaluation of "positive" or "negative" can change.
  
• Technology can change a good. E.g., cable television works fine as a private good.
• Changes in law can do likewise. E.g., lighthouses can easily be private if parts of the ocean were opened to homesteading (private ownership). Lighthouses could then effortlessly exclude nonpayers.
  

Goods becoming Public: Subjective Evaluations

All goods, even very "private" ones away from other non-owners, can be seen as something public as long as one person sees it that way.

The viewing of a good as public or private can change through time based on the "changing values and evaluations, and with changes in the composition of the population."

Furthermore, this viewing is only of degree. As can be seen there is no actual "clear-cut dichotomy between private and public goods."

How is Something Viewed as a Good (private or public)?

• A person must view something scarce as having some subjective value to be owned.
• Otherwise the thing in question would not be considered a good.
• There is no "physico-chemical" test.
• Hence: "goods are goods only in the eyes of the beholder."
• There is thus no objective test to say something is a public good or a private good.
  

A Private Good Becoming a Public Good (and back again):

In a like manner, any private good can become a public good once someone subjectively values it as such. This public good can furthermore change back into a private good. It could also change once again into a public good. And so on. The perception of a public good, too, can change between being seen as a positive or a negative. Different men can perceive it in different ways.

So it seems clear that because of this it is not possible to truly classify a good as intrinsically one of the two. Just as man's value of goods is subjective, and value cannot be intrinsically inherent in goods, objective distinctions between public versus private goods is illusory.

Logically following a public goods theory would require asking everyone what their own subjective evaluations were. Everyone would have to be asked if they saw the given good as a public one and if so whether or not it was a positive one relative to them. This would be the only way to classify all goods as either public or private.

This information would determine who profits from each and every good----viz., if a good in question profits, in addition to those that directly pay for it, those who do not directly pay it----and then what goods are to be private and what goods are to be public. ("And," notes Hoppe, "how could one know if they were telling the truth?!")

Doing this would also require constantly monitoring the public because the public's evaluations of goods can change. Every action in regards to production would require permission in the attempt to determine the public-ness or private-ness of every good, but society would literally die out if such futile attempts were actually made.

State Production of "Public Goods"

For the sake of argument assume that there is an objective way of determining if a good is public or private. [Perhaps every good has a label on it.] But why should the State produce these goods rather than the private sector?

Again, it is said that public goods either would not be produced at all or would be produced little because there would be men who would profit from them without paying for them, and that therefore they should be produced by the State. These goods "are evidently desirable, but would not be produced otherwise."

There are two problems: (1) ethical and (2) utilitarian

(1) The only way to reach the conclusion that these goods should be produced is to move beyond the field of economic theory and into ethics. These economists "must smuggle a norm into [their] chain of reasoning."

Public good theory just makes the jump without a theory of ethics. By their own standards and writings they have "no authority whatsoever."

So they take a leap into this norm: If a good that would have some kind of positive impact on people would not be produced in adequate quantity, then aggression is allowed to force people to produce them. Pushing this to its logical and ultimate conclusion would be this: "everyone can aggress against everyone else whenever he feels like it."

But could this norm be justified in argumentation? The answer seems to be a clear no.

(2) It is a fact of existence that there is scarcity. Production of X must be produced at the price of the possible alternatives that exist (i.e., there are opportunity costs). It may well be that consumers value "private" goods more than "public," but the only possible way to find out is to let consumers go after what they value more highly in a free market.

X good that is valued lower to Y is valued as such because they value it lower. A public that valued so-called "public goods" would produce them on the market to the extent that they wanted them. It is the only objective test that exists. The public good theorists must use this test and this test will force them into adopting the view that all goods be private. And as previous examinations have shown, goods produced privately have all the advantage of the market versus those that are not.

Hoppe then moves into the final topic, the production of security.

Liberty Demands Anarcho-Capitalism

Minarchists believe there needs to be a "common body of law" before the market can come into being. Hoppe replies that this is true but it does not follow that there needs to be a monopolist in charge.

Language is also something presumed on the market, but it does not follow that a monopolist, like the State, be in command of it. Instead it is a spontaneous feature of the market and can be explained by self-interest, i.e., it is in the interest of men to have a common language to reap its awards.

Law does not seem to be different. A division of labor, which is in the self-interest of man, requires "common rules of conduct." And the basis of this law is aprioristically linked in man's action and argumentation. [There is nothing mysterious or out-of-the-blue about it.]

[In replace of classical liberalism, libertarianism offers a consistent, coherent, and non-contradictive defense of liberty. It pushes it to the logical and ultimate conclusion.]

Classical liberalism, with Ludwig von Mises being the "foremost representative in this century," was a political philosophy based on the natural rights of private property. At the same time, however, it advocated that private property be protected by a monopolistic, and thus coercive, agent that by its very nature violates private property rights in the name of supposedly protecting them.

But, writes Hoppe: "Either the principles of the natural property theory are valid, in which case the state as a privileged monopolist is immoral, or business built on and around aggression—the use of force and of noncontractual means of acquiring resources—is valid, in which case one must toss out the first theory."

Logic and morality forces us to adopt a political philosophy of libertarianism, with its foremost representative being Murray N. Rothbard.

The Free Market Production of Security

• A libertarian society would consist of freely competing agents who would be in the business of security (defense and arbitration).
• There is no way to say a priori how it would exactly work. Anymore, says Hoppe, than how hamburgers would be produced "if up to this point hamburgers had been produced exclusively by the state."
• Meaning one cannot describe the exact structure, number of agents, the relative size of this industry versus others, the sorts and differences between the agents, etc.
• This is amplified by the fact of change and its relationship to such an industry: change in demands of different consumers, technology, prices outside the industry that affect the industry indirectly, etc.
• Even so, given that a demand exists much can be said about the overall industry.
  

The Economics of Security Production

• Security, as a good, must compete with all others on the market. I.e., what is spent on security cannot be spent on something else.
• It is not a homogeneous good.
• There are "numerous components and aspects" to it.
• Its supply has marginal units.
• Men value security differently, both in regards to security by itself and different components and aspects thereof.
• These differences can arise from the different personalities, past histories in regards to (in)security, the location they live, etc.
  

The Problems of State Production

The State collects its revenue via taxation and therefore the amount of funding to the ends of security is not determined by consumers on the open, free market. Instead all funding is independent of them. Not only is the overall amount arbitrary and independent of consumers but so is each component and aspect of it.

The State will not be able to answer these questions without answering them arbitrarily...

• How much to produce overall.
• How much to produce for each subclass of security.
• Where (what location) it spends or puts its resources.
• To whom.
• To what specific subclasses should it fund.
  

Overall, the State will not know how much to produce, how much to produce of the various different subclasses of security; where it should put its security, how much, to whom, and what kind of security exactly.

To quote Hoppe: "Do we need one policeman and one judge, or 100,000 of each? Should they be paid $100 a month, or $10,000? Should the policemen, however many we might have, spend more time patrolling the streets, chasing robbers, recovering stolen loot, or spying on participants in victimless crimes, such as prostitution, drug use, or smuggling? And should the judges spend more time and energy hearing divorce cases, traffic violations, cases of shoplifting, murder, or antitrust cases?"

He goes on: "Clearly all of these questions must be answered somehow because as long as there is scarcity and we do not live in the Garden of Eden, the time and money spent on one thing cannot be spent on another."

Results of State Management

Because there is no profit-and-loss, management will not be in terms of actual consumer demands, and there will necessarily be misallocations of these scarce resources and hence waste.

State production and management (again, since there is no voluntary relationship and no profit-and-loss) will be done on "what they like" and not consumers. They will be increasingly intent on doing easier work and lazing about than not. [Compare this to a free system: Producers would be dependent on consumers financially.] And with their power they can be more abusive and brutal. They would likely put more effort into victimless crimes than hard crime, unlike consumers since consumers generally would want to spend their own money on crime that can directly affect them.

When it comes to hard crime (robbery, murder, rape, ..) there will also be problems. Statist judges are independent of consumers and their wants. [Again, remember, no one can fire them and there is no competition.] The judicial process will be slow in the allocation of services: there is no price signals to allocate economically and efficiently for the consumers.

There is no "service contract" that is "laid down in unambiguous terms what procedure the consumer can expect to set in motion in a specific situation." Rules and procedures are thus in the air. They can arbitrarily change, without one knowing it as it would be known if there were market contracts. This creates uncertainty. [And, by the way, makes the expensive and overly inflated lawyer more important.]

Perversely, any disputes between a State court and a citizen are not handed to an independent third party arbitrator but are assigned to another State court working under the same umbrella.

The production factors of security cannot be sold, and capital value will lessen and overutilization will result. Accordingly police stations and courts will be in relatively poor shape.

All of this will occur because they are not left to the market and competition. The solution is hence to be found there.

The Free Market Solution to Faulty State Management

No "perfect" solution exists, of course. "But," Hoppe writes, "in terms of consumer evaluations the situation would improve to the extent that the nature of man would allow..."

All security agents, in a free and competitive market, could only legally obtain income from voluntarily paying customers. These relationships, one could fairly predict, would most likely be contractual ones where customers pay their agent each month.

The private property ethic in a free market would require and push agents to define their contracts to their customers clearly and unambiguously. There would as a result be no void that is produced under statist conditions.

Because these private agents are dependent (not independent) on customers there would be an improvement over the attitude of the providers, the quality (and consequently speed) of the services, and the lowering of the costs to security operations.

They would be subject to profit-and-loss.

The goal of increasing income could only be done by either improving services or lowering prices for consumers----again, unlike socialist enterprises.

A private agent that failed in providing for such demands would, in the long run, be put out of business.

Agents would also have to work within the below reality....

Given the diversity of man, private agents would have to provide for a diverse crowd of different wants and needs. Consequently, there would not be a single or uniform "security packet," but a "multitude of service packages [that] would appear on the market."

These packages would have to account for the fact that the following kinds of things require different levels and kinds of security...

• Different occupations.
• Different "risk-taking behaviors."
• Different things need various levels and kinds of protection and insurance.
  
• Different locations and different time constraints.
• Etc.
  

Every single consumer would count to the operation of a given agent, no matter how small his single impact.

Market-based security would make it not possible for this industry to increase its position vis-à-vis other industries without consumers at large placing more value on security. Therefore, there would not be overproduction (or under).

Insurance would also appear, since they want (safe) property to ensure. Insurance agents in protection would pool people's risks. In a competitive free market it would not be possible, unlike a statist market, for these pools to engage in any kind of redistributive measure between those insured because consumers would see such unfair policy and competition would punish these insurance companies for being inefficient and uneconomic.

The Possibility of Outlaw Agents --- First, a Quick Look

Firstly, historical evidence seems to suggest otherwise.

Hoppe: "Systems of competing courts have existed at various places, such as in ancient Ireland or at the time of the Hanseatic league, before the arrival of the modern state, and as far as we know they worked well."

The Ancient West in America had private police and, despite what is seen at the movie theater, a relatively low crime rate (per capita) compared to today.

[For example, see these essays: "The American Experiment in Anarcho-Capitalism" by Terry Anderson & P.J. Hill and "Property Rights in Celtic Irish Law" by Joseph R. Peden.

And listen to this mp3 Hoppe lecture on pre-state feudalism.]

Another reason that it seems unlikely that an outlaw agent would become some kind of normal happening is if you look at the international anarchy that today exists. Commerce commences successfully without a single world monopoly State.

Plenty of private security is around right now: "private investigators, insurance detectives, and private arbitrators. Regarding their work, the impression seems to confirm the thesis that they are more, not less [efficient] ... than their public counterparts."

And, finally, a deductive analysis leads one to see that a competitive system would actually have a greater incentive for a stable society of order and law. (More on this soon.)

Resolving Disputes in Anarcho-Capitalism

Man A and man B get into some kind of conflict...

They could belong to the same company. In this case there is no conceptual difference than what we have today. They could also belong to different companies. It is possible that both companies would agree with a single verdict. But what if they disagree?

Statists often reply that the companies would just start killing each other, or something like this. Now any reflection shows that a default reaction of killing each other is silly. It would be both very costly and very risky. This would make it unlikely.

Since a company that grew to a good size depends on a large clientele, stability and order would be a key feature to it to have gotten to where it has gotten.

More importantly is the fact that if a battle occurred between companies X and Y, they both would require continued voluntary support from their customers. Even one person who withdraws, because he does not believe a battle is necessary, would put economic pressure on the given company to seek another solution.

---Contrast this with the State: In war, with a State, no one can drop out and stop paying taxes. Would war be more likely or less without this ability to tax? The answer seems clearly less. [Imagine if people could stop paying their taxes for the Iraq occupation! Let's see how long this imperial occupation would last under that possibility.]---

This economic pressure would obviously multiply many times over with a larger number of withdraws. It is because of this fact (because of this possibility) that any company would have to be cautious when engaging in any kind of violent action.

If the majority of the given population wants peace, then this is what will be reflected in the companies. Each company, for mere self-interest alone [and thus there is no need to trust in human goodness and incorruptibility, like we do with the State], will thrive to work out in its contracts with its customers how such cases would be resolved.

What would develop then would be independent third party arbitration services.

These services would arise by agreement between different defense companies and their respected customers. With this would come economic pressure to find the most "universally acceptable" law.

• Arbitrators would be fully dependent on continued financial support between (disagreeing) defense companies. These companies, supported by their customers, would only go to arbitrators who carried out their jobs in the best way possible.
• Economic pressure would therefore exist for arbitrators to find "solutions to the problems handed over to them which, this time not with respect to the procedural aspect of law, but its content, [which] would be acceptable to all of the clients of the firms involved in a given case as a fair and just solution."
• If they did not do this, they would lose clients to other arbitrators in the future and would ultimately go out of business. Ones that grew and found a large set of followers (so to speak) would be the ones that performed their job as it was indeed to be performed.
  

But, still, Would Not "Anarchy" and War Break Out?

I.e., could a defense firm, supported by its voluntarily paying customers, become an outlaw organization?

• Obviously it is possible.
• But any order, statist or not, needs public support for it to continue to be what it is.
• E.g., given public opinion it is today unlikely that a fully "Russian-style" socialism could be implemented in the U.S. [Or, say: Is it likely that given public opinion that the 50 states of the U.S. will develop their own armies and start bombing each other?]
• So the question must be put into this context: given the current public opinion is it likely to see large outlaw organizations develop?
• The answer is: It depends on the population. Are they more socialist (meaning bloodthirsty warmongers) or not?
• But given the opinion would a free society be better off or not?
  

Hoppe: "Thus, the first reply to those challenging the idea of a private market for security would have to be: what about you? What would your reaction be? Does your fear of outlaw companies mean that you would then go out and engage in trade with a security producer that aggressed against other people and their property, and would you continue supporting it if it did?"

• In a free society there would be a "change in the cost-benefit structure" when making decisions.
• Under a statist system it was considered legal to participate and finance State aggression.
• Under a free system it would be considered illegal.
• It would thus be more expensive, under a free system, than before in participating in and financing an agent that became an outlaw aggressor.
• Hence the number of individuals, with any given frame of mind (and even those who would generally be inclined to support State aggression and war making), would increase towards directing their participating and financing into legal, peaceful agents.
• And, hence, the number of individuals who would direct towards exploitation would fall.
  

The push on the market would thus be a push for stability, order, and peace, as long as the majority of the public valued those things in the given nation.

Those benefiting from the older, statist, order would lose. They might still have an interest in a system of aggression. But it seems unlikely that they would have the upper-hand to the rest of the public and their defense companies. On the other hand, if they did win, then a State would be back again.

In any case, says Hoppe, even if there were just too many in the public that valued a society based on coercion and aggression, society would still enjoy, for a period of time, a system of unheard of economic prosperity.