38 posts tagged “freedom”

BLOG NOTE/EDIT: I have decided to delete the old version of this entry (Sep 22) and repost a new edited version. I did not proofread the last one that well. I am a dummy. My apologies. The revision of the old entry into this new one, I hope, has been substantially improved.

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“Is government really necessary?”
“Is government our protector . . . or our destroyer?”

Such fundamental questions are rarely asked or thought about, if ever. It is an unmentionable subject. Since it radically departs from majority opinion, it must be rejected out of sight. But, as history should teach us, conventional wisdom is often dead wrong. One day, for example, Albert Einstein came along to overturn conventional wisdom in the subject of physics. He overturned Newtonian Physics. Instead of seeing space and time as rigid absolutes on a stage with an 'absolute' frame of reference, Einstein demonstrated by upholding two axioms which consist of the invariability of the speed of light (from all reference points) and the so-called general principle of relativity (i.e., all frames of reference are 'equally' valid, so to speak, for those traveling at a constant velocity), that space and time are relative concepts that must be bent to make those two axioms hold. The stage of physical reality was turned upside down! (If I recall correctly, he wanted to call the theory the theory of invariability to display the invariability of light; not the theory of relativity.)

Relativity is a radical thing to think about. (And much enjoyment comes from contemplating it.) But this does not give us reason to reject it; anymore as one should reject thinking about a libertarian society (a stateless order), another radical concept. The point is that conventional wisdom so often is shown to be incorrect by a minority, while the majority are stubborn and unwilling to change easily. Science has past through major stages in often this way, with one giant leap after another. One group in the minority of political economy is the "Austro-libertarians." They subscribe to the Austrian school of economics and are libertarians (paleolibertarians), or anarcho-capitalists. Walter Block, the author of Defending the Undefendable, is an example. Hans-Hermann Hoppe, Lew Rockwell, Thomas Woods, Robert Murphy, are some others.

By default people accept government as a necessity of life. They cannot conceive of any other order. (Orders, by the way, that have existed in the past close or even very close to libertarian principles.) Such taboo questions are hammered and molded out in government education camps. And forums are not given to such topics.

Anarcho-Capitalism

But one must be careful in defining and defending a libertarian-stateless society. It does not mean a world with zero laws or rules. Neither does it mean that all property is somehow collectively owned by everyone, where money and profits disappear. (An absolute ludicrous absurdity propagated by commie-anarchists.)

Generally I do not like the word "anarchist." To most people it just means someone who believes in chaos or some form of collective communism. This is why the great Murray N. Rothbard used the term "anarcho-capitalist" to distinguish it.

Other terms for anarcho-capitalism have been floated about, such as: market anarchism, natural order, radical capitalism, private law society, etc.

Here is what the great Lew Rockwell has to say on the subject:

Power and Market by Murray Rothbard

The term anarchist is mostly used to mean someone who believes that if the state and law are gotten rid of, all property would become collectively owned. It was the great insight of Murray Rothbard that this is not the case: private ownership and the law that support it are natural, while the state is artificial. So he was an anarchist in this sense but to avoid confusion he used the term anarcho-capitalist. This doesn't mean that he favored somehow establishing a capitalist system in place of the state. What he said is that capitalism is the de facto result in a civilized society without a state. Has this position made advances? Yes, but not so many that we can use the term anarchism without causing confusion. If the purpose of words is to communicate, I'm not sure that the term does that well.

As to my own views, I do believe that society thrives best without a state. But I'm with Rothbard, Nock, Molinari, Chodorov, and others who believe in law and private government, such as we find in corporations, housing subdivisions, and church hierarchies. So if by anarchism we mean a society without law, I'm completely against that idea.

[The following is a partial summary of The Market for Liberty. It also contains some of my own thoughts and/or reflections that I have added. There are some other topics in the book that I do not cover in this summary, so you will have to read the book yourself. It is available at Amazon. You can also download it, for free, here (pdf) at the liberty loving Mises Institute. It is a wonderful book for its limited focus.]

The Market for Liberty

A good beginner's book that exposes government as an unnecessary evil is The Market for Liberty by Linda and Morris Tannehill. Its focus is on how market's produce order and security, which makes this book, a great way to start thinking about anarcho-capitalism. It is not completely a rigorous book, and has areas of pure speculation, but it is an essential book to read, and will help to open one's eyes to a degree to which one cannot be so instinctively dismissive.

(For some source of disagreements, see the end of this blog entry. In particular, their view of radical individualism and the lack of any emphasis of the importance of community or social intermediate institutions. But if one leaves these things aside---be they important---, it is a outstanding book.)

Ayn Rand's philosophy is inserted into the book, but here it is used to argue against even the statism that Rand promoted.

But... before us libertarians get accused of being unrealistic utopians, you must understand that we do not see a perfect world even in anarcho-capitalism. Man is what he is: imperfect. There will always be evil men. No one denies that. But what we propose is something that will minimize the evils and maximize the goods of the world. This is based on private property and capitalism. It rewards good and punishes bad, as to the extent man allows.

Linda and Morris Tannehill say that overwhelmingly people are dissatisfied with the current political world. Youth in particular are unsatisfied. But before we can try to alter the world for the better we have to understand man. We must recognize what makes men most happy and what the requisites are to accomplish that.

Libertarians believe in a society that, write the Tannehills:

is based on one fundamental principle: No man or group of men----including any group of men calling themselves “the government”----is morally entitled to initiate (that is, to start) the use of physical force, the treat of force, or any substitute for force (such as fraud) against any other man or group of men.

Statists believe that man can be molded into whatever they want. Ultimately it will always lead to practical failure because, as Linda and Morris write, man does have a nature. There are natural laws. Futile it would be to make-believe that gravity can be changed, as it would be to change the natural laws of man: that is, of self-ownership and property.

Our authors say that life requires expending energy and making choices. Sustaining life is not a given to man. He must act. Only an individual in question can expend energy, and only he can make choices in his own life. To make choices requires the use of reason and good judgment. Rational judgment must be used in the making of individual choices. Clearer judgment generally leads to better outcomes, but the initiation of thinking can only come from the given individual. It starts with him. Just as sustaining one's life is not inherited, this is also true with rational judgment. This one must learn in life and, to do this, the individual must exercise himself in this development. For man to think, he as an individual must exercise the thought process.

He must have the freedom to do this! It is necessary for man to grow and learn. Statists of the left and right try to diminish this in one form or another. And, it seems to me, whatever area the government takes over, only lessens man's overall ability in that area. We could be talking about economic rationality or (yes, even) moral rationality. The more the State takes over these functions, the less man will be rational in these individual functions. Socialism in economics and socialism in morality must be rejected.

Thus, say the Tannehills: "This means that no man can successfully run another man's life." To find happiness requires one to individually seek it. (Who but you will make you happy? It starts with the individual.) We must also suffer the consequences of our actions, just as we gain the enjoyments of successful actions. This is required to learn and grow.

Society must harness this and allow man to pursue bettering himself without others controlling him by the point of the gun. He must enjoy the fruits of what he earns. When those are taken, they are taken by someone who has not earned them. The mugger has taken them by coercion. One that must act in accordance to a majority gang or government by the threat of physical coercive force----in violation of private property rights----is to put men in the position of slavery.

They reason that a complete laissez-faire society is possible because it corresponds to the nature of man. This is why it is attainable. We do not have a free society because people have accepted that it is "both proper and necessary for some men to coercively rule over others." The great conflict of freedom versus slavery, our authors say, is expressed through the battle of the free market versus government.

What is the free market? Here is what they write...

The free-market system, which the bureaucrats and politicians blame so energetically for almost everything, is nothing more than individuals trading with each other in a market free from political interference. Because of the tremendous benefits of trade under a division of labor, there will always be markets. A market is a network of voluntary economic exchanges; it includes all willing exchanges which do not involve the use of coercion against anyone.

Regulating the market is "people control," as the Tannehills so correctly state.

When politicians and so-called economists speak of “regulating the market,” what they are actually proposing is legislation regulating people----preventing them from making trades which they otherwise would have made, or forcing them to make trades they would not have made. The market is a network of trade relationships, and a relationship can only be regulated by regulating the persons involved in it.

Prices do not arrive out of nothing. They arrive from sellers and buyers. There are two sides of the equation, so to speak. Government forces people to act differently then they would otherwise act, if it sets up such a thing as a price control. If this were not the case, then the government law would not exist or need to exist in the first place. Government intervention invariably causes people to act not in their interests and causes loss in their freedom.

As the authors tell us in The Market for Liberty, there are those that want to control people and believe that government should have this power.

Statists must then believe that the government knows better than people----than individuals. Because they want to take freedom away from them.

Linda and Morris Tannehill refute this:

1) You, as an individual, know better than anyone, especially someone far away, to run your own life.

You may make mistakes in your market dealings, but the bureaucrat’s isolation from direct and immediate information about your situation and his lack of a strong personal interest in your affairs absolutely guarantee that he will make a lot more and bigger mistakes, even if he’s honestly trying to help.

2) Those to be regulated "against their interests are a part of the very public which is supposed to benefit from those governmental controls."

Advocates of government regulation usually accept the idea of imposing some losses on those who are regulated, but they fail to take into account the fact that those losses will inevitably diffuse throughout the economy like ripples spreading in widening circles over a pond.

The market is not some tangled up mess. It is actually very orderly. Instead of politicians judging what should and should not be made, the free market allows consumers to decide. Due to its expansiveness and flexibility, it is not just restricted to please the majority of people, but it also fulfills the endless desires of specitaly items and services to the minorities that demand these specialty things.

Government---An Unnecessary Evil

What is government?

Government is a coercive monopoly which has assumed power over and certain responsibilities for every human being within the geographical area which it claims as its own.

A few have argued that government could (somehow) exist without taxation. Under this scenario it would supposedly be non-coercive. This is faulty and muddled. Government exists as a territorial monopolist, be it a democracy or a dictatorship. It bars open competition with its functions, and to govern it must have some governing functions over a given territory, and must protect this status with the use of coercion. Hence, governments are and always will be coercive institutions. It must use force in order to prevent a free market developing in the areas it has chosen to claim to be under its sole responsibility and control. Such things include roads, mail, courts, police.

"Checks and balances" do not work. The problem with statist reasoning here is that these so-called checks and balances are part of the very institution that is meant to be limited! And history shows that such things do not work. The United States being the primary example. It was an experiment that failed.

"Further," writes the Tannehills, "a position with even a small amount of power over others is attractive to men who want to wield power over others." Since bad and evil men will always exist: Which is better? Voluntary relationships or dictatorial relationships? And, as our authors say, who will be more inclined to be attracted to the use of power? Certainly not an honest or moral man. Gosh, just take a look at the creeps in office today.

To maintain its existence, governments must use force:

The more areas within its boundaries a government seeks to monopolize . . ., the more repressions it will have to use against its citizens, and the more bloody and violent these repressions will be. The more areas outside its boundaries a government seeks to control (that is, the more imperialistic it is), the more wars it will have to engage in, and the more prolonged and destructive these wars will be. . . . Wars and repressions are inevitable so long as governments continue to exist. The history of governments always has been, and always will be, written in blood, fire, and tears.

They also argue that government's operations will be "arbitrary and, therefore, without reason. Any institution which is not a part of the free market" is "not subject to the rules of the market, must be set up and operated on the basis of arbitrary rules and thus cannot be just and reality-oriented." Under statist control, there is no check to see if its operations are reality-oriented. In a free market institution, what you see are input-and-output costs. You see profits-and-losses. This is what guides private market activity. All things being equal, it always pushes the allocation of finite resources to their most productive uses. (That is to say, this is what its tendency will tend to be.)

A businessman has to please people. He earns wealth by bringing wealth. He does not force anyone to buy his products or services. He must convince people to voluntarily come to him. At the same time, he must be aware that others may enter the field of competition. This helps keep him in check to provide the best product or service that he can. He knows a better guy can come to town to out compete him. But government does not convince individuals to voluntarily come to it or anything of the sort. (Stop paying your taxes, and see what happens.) It is based on coercion. And government does not have, and cannot have, competition.

Even a government (somehow, mysteriously) limiting itself to just "protecting" its citizens is still dangerous, and contradictory. How can this institution----by its very nature one that violates men's life, liberty, and property---protect us? It first must mug us and then protect us!? Secondly, how much "protection" must it give to its subjects? The justification of "protection" could justify a massive Leviathan State. (For example, government could argue that its increasing invasions into our properties are "justified" because they need to "protect" us from terrorism, and hence justifying a massive government. This is why "limited" statism is a false idea.)

The question Linda and Morris Tannehill ask: "Who will protect us from the governmental 'protectors'"?

A Free and Healthy Econ

Invariably one question that comes up by some left-liberals and some conservatives is: "What about the poor?" Well, what about them? Just because one would, in a truly free market economy, have to buy X, Y, and Z to which was previously and seemingly available for "free" should be turned on its head:  What about the products they now have to buy on the market? Because there are poor people does not justify that these goods be nationalized.

Left-liberals often get irrationally angry by mentioning this, but private charity would not just go away. (Right now, for example, there is more private charity that leaves the U.S. than what the government spends on foreign aid. Although, foreign "aid" really is in support of foreign governments and not people.) In a free market, private charity would increase. As has been documented time and again, when people have more money they give more money to charity. A fact that many leftists would rather ignore. Another area that many left-liberals like to ignore is how the "war on poverty" has just increased poverty. They continue to want to wage their wars with governmental schemes, but they have only made the problems even worse. More meddling has only increased it. The laws of economics say that this has to be so by statist intervention. However, unlike government's top-down approach, private charity is astronomically better. It does not distort the market by subsidizing more poor.  It tries not to reward people for being where they are, facilitate dependence, or whatnot. Those really in-need are looked for and those, who are capable of helping themselves, would be cut loose as unworthy parasites. It is quite the opposite from government so-called "charity" or "welfare." (What is charitable about charity by the gun? Welfare is not moral, but immoral and disgraceful.)

One interesting thing in particular that Linda & Morris Tannehill discuss is "market" monopolies versus coercive monopolies. Besides the "obvious" fact that, as has been discussed before on this blog, no such thing as a market monopoly exists on a truly free market, is how the authors indirectly attack the concern some people have when it comes to the possibility of coercive monopolies developing in anarcho-capitalism. The thing these concerned people fail to take into account is that such activities are very expensive. There is always a threat from new rival competition on the market. Even large companies need to stay cost efficient to "stay on top." Once they fail to do this, the market will penalize them.

Compare this to government protected and created monopolies and cartels. The market is not allowed to penalize them. Unfortunately the higher you go up in the business world today, the more likely government has created laws to protect them from competition. This, in fact, is the very reason for all of today's regulations and controls on the market. It is not in protection of consumers or us "little people." Mr. Lew Rockwell is right by saying that politics is a rich man's game. It is indeed.

Now to go back to the Tannehills, the moment a "market" monopoly applied coercion, consumers would react along with other companies and entrepreneurs. The given company would dry up from the expenses of such an activity (i.e., engaging in the very activity) and from the reaction. Under market conditions there are always rivals and potential rivals. Anti-market (i.e., coercive) activity is punished by the forces of the market place. In addition, the development of super-super sized companies would be riddled with calculation problems placing natural market limits (see above link).

Property----The Great Problem Solver

Government has no right to force people to pay taxes. An owner of a property is the owner --- not the renter to the government master.

Because a man must use his time----which is part of his life----to acquire, utilize, and care for property, he has a right to own and control that property fully, just as he has a right to fully own and control his life (so long as he doesn’t use it to coerce any other man). Any form of property tax or regulation denies the individual’s right to fully control his own property and, therefore, his own life.

Material property can be possessed "by producing it, by exchange with others, as a gift, or by claming an unowned value."

Claims made on land property can and will become open to dispute between men sometimes. This is why a market of arbitration services would come into being to hammer out land-property titles. It is open entry and competition that will excel these agencies to be as fair and efficient as possible.

Businesses in a free market would take over this function, since it is a salable service. These companies would keep records of titles and would probably offer the additional service of title insurance (a service already offered by specialized insurance companies today). Title insurance protects the insured against loss resulting from a defect in the title of the property he buys (as, for example, if the long-lost niece of a deceased former owner shows up and claims the property by inheritance). It would substantially reduce the problems of conflicting claims, since title insurance companies would be unlikely to insure a title without first checking to make sure there was no conflict.

Homesteading or "mixing one’s labor" with land is arbitrary to prove ownership, they argue. It is not absolute. This is a reason why these arbitration and insurance companies would be so vital. Improving and transforming a given land in some way will of course help one's proof that they are the owners. But it would not in itself prove ownership.

Private property ownership creates a wealth of new possibilities, if only government got out of the way. Lake bottoms would be an example. Why cannot they be privately owned? Off-shore drilling show that they can.

Another area that would be turned into private property would be public property. As the Tannehills write, there is nothing "public" about public property. It is still controlled and "owned" by the government, but "owned" illegitimately and unjustly. For this reason it must be open up to private claims of ownership.

Society that switched to full private property ownership would solve many problems. Bums and other unwanteds or disruptors would be forced to live on the edge of society, obtain residence and help from other voluntarily agreeing individuals, or civilize themselves in the productive economy. Privately owned streets and sidewalks by private companies would have an interest to provide good security. They would thus prohibit "drunks, hoodlums, and any other such annoying menaces, hiring private guards to do so if necessary."

Pollution problems would also be cut down. Actual measurable pollution in one's property (damaging one's property) is trespassing. Natural resources would also be used more efficiently. Environmentalists concerned with earth's resources fail to see that allocation of scarce resources requires market activity. It is the market that uses resources to their most efficient use: both short and long term. Capital stock ownership, unlike governmental or public ownership, gives a long-run incentive for good and efficient use.

Arbitration of Disputes

"A governmental judge depends on political pull." --- versus --- "A free-market arbiter depends for his livelihood on his skill and fairness at settling disputes."

Society needs law and order, no doubt. One with no rational arbitration of disputes would produce a chaotic society.

It is, however, a myth that government is the only way to provide law and order. Competition always improves efficiency and accountability. This does not change with the arbitration of disputes between two or more individuals. Under a free market, specialization would occur for particular kinds of disputes. These arbitrators with these specialized skills and knowledge would be far better than incompetent governmental boobs who have no such knowledge of specialized subjects.

For illustration pretend a "simple" contract dispute occurs. Two individuals that have some (title-property) contractual relationship would probably have an agreement, in the contract, to go to disinterested third party arbitration company X (which is in the business of being disinterested or unbiased in the competitive market!) if they ever got into disagreement over the terms of the given contract. And in so going to arbitration X would be bonded by contract to abide by its decision. It is also possible that they would decide to go to more than one agency.

Those who needed arbitration would thus be able to reap the benefits of specialization and competition among the various arbitration agencies. And, since companies must compete on the basis of lower prices and/or better service, competition among arbitration agencies would lead to scrupulously honest decisions reached at the greatest speed and lowest cost which were feasible (quite a contrast to the traditional governmental court system, where justice is often a matter of clever lawyers and lucky accident).

Arbitration agencies would employ professional arbiters, instead of using citizen-jurors as governmental courts do. ... Professional arbiters would be highly trained specialists who made a career of hearing disputes and settling them justly. They would be educated for their profession as rigorously as engineers or doctors, probably taking their basic training in such fields as logic, ethics, and psychology, and further specialization in any field likely to come under dispute. While professional arbiters would still make errors, they would make far fewer than do the amateur jurors and political judges of today. Not only would professional arbiters be far better qualified to hear, analyze, and evaluate evidence for the purpose of coming to an objective judgment than are our present citizen-jurors, they would also be much more difficult to bribe. A professional arbiter who tried to “throw” a case would be easily detected by his trained and experienced colleagues, and few men would be so foolish as to jeopardize a remunerative and highly career, even for a very large sum of money.

Justice is an economic service. It deals with labor and scarcity. Instead of unqualified citizens becoming jurors, professionals and specialists would develop and compete with each other on the open free market. Those that are the brightest and judge fairly would get a following of customers and would make a good salary.

Private insurance companies would develop to help prevent contract breakers. They would indemnify losses of their customers who were victimized-------that is, who were robbed by someone who broke a contract in the case of debt. It be these companies that would put enormous pressure on those who do not fulfill their agreements to pay their bills. Credit history is an example of how credit card companies try to avoid irresponsible people. Such systems would develop when it comes to those that cannot be trusted in dealing with. There are powerful market incentives for these systems and for law and order in general.

Protection of Life and Property

Man owns his life. This gives him the right to defend that life from aggression. He also owns his property possessions. This gives him the right to defend them.

Pacifism is an anti-human, anti-life doctrine. It asserts that one cannot defend himself from aggression. He who does "sinks to the same level as the attacker." This is to make the line between self-defense and an attacker on the same level. It blurs completely right and wrong. A society of individuals that embraced pacifism would let loose criminals.

Reasoned men defend themselves. But more than self-defense is needed and demanded by people. Just as the division of labor makes possible doctors, so too would it be opened up for the production of private protective services. (We are not "atoms"! If we were, no division of labor or society would exist.) Such hired agents would have all the rights that you do----no more or less.

Some may disagree, as the Tannehills write in The Market for Liberty, and say that the use of force is fundamentally different than all other market transactions. That it cannot be handled by the market and so must be handled by a government. But, say our authors, this thinking "springs from a failure to distinguish between initiated force and retaliatory force." [emphasis mine] Force for retaliatory or restitutory reasons is in protection of man's liberties----in protection of the free market.

A market phenomenon is a willing exchange of goods and/or services which does not involve the use of coercion by the parties to the transaction against anyone. It is true that initiated force is not and can never be a market phenomenon because it acts to destroy the market. But, retaliatory force not only does not act to destroy the market, it restrains aggressors who would destroy it and/or exacts reparations from them.

The free market would provide the very best of protection. Like any other business, they would have to offer the very best services at low cost or go out of business or lose their customers to other more efficient protection agencies. This competition would help keep these companies honest, efficient, and cost competent.

All of these are the incentives that government does not have and can never have. Government has no such incentives. Police rarely are preventative of crime. They show up after the fact. Do not help recover loot. Penalize the victims. (They, not the criminals, have to pay part of the bill via taxes!) Worse still, they do not provide protection but try to "protect" us from ourselves! Police go after victimless "crimes" more than genuine crimes. They ban things that are contra to individual actions. By coercively and monopolistically banning things like drugs and prostitution, they create dangerous black markets. These black markets create an atmosphere of crime, which would otherwise not be there. Thus, instead of protecting us, police create more crime and danger. They make us more helpless and defenseless in a more dangerous environment.

On top of that, they make individuals ever more vulnerable and weak by taking away all means of self-protection. In many locations one cannot protect oneself with a gun because of government imposed law. Imagine this happening with a private agency! Who would ever agree to hand over all of their means of self-defense to a private-defense company and then also sign over their very life to be a slave to it!?

The vast majority of the functions, the Tannehills write, do not deal with genuine defense and protection. Today's system does little to nothing to prevent crime. Private defense companies, on the other hand, would provide genuine protection. They would want to prevent crime, as much as possible. After all, it would make them more wealthy. Here are some of the things they might do...

Since the main aim of defense service companies would be to protect their customers, their primary focus would be on preventing aggression. They would furnish guards for factories and stores, and men to “walk the beat” on the privately owned streets. They would install burglar alarms with a direct connection to their office in both businesses and private homes. They would maintain telephone switchboards and roving patrol cards and perhaps even helicopters to answer calls for help. They would advice customers who felt themselves to be in danger on the most efficient and safest protective devices to carry in their particular case (from tear gas pens to pistols) and would offer help in obtaining them. ... Besides these more ordinary services, each company would strive to develop new protective devices that were better than anything its competitors had . . . which would lead to tremendous frustration for would-be crooks.

These private companies would also be held responsible for their actions. Instead of police being shielded, private companies and private police must redeem and be held responsible for any acts of aggression or brutality.

As many other libertarians construe, a free society would have insurance companies helping to prevent violence. It has been reasoned or deduced that there is a strong tie or connection between insurance companies and law (security). People, of course, have such an interest for such business institutions to exist. But insurance companies would too because more stability means greater production and profits. The better protected their customers; the better they are off as well.

Instantly these companies would redeem their clients in case of damages due to aggression----similar to fire and auto insurance are issued and used. Since they would be in the business to make profits (to please customers), they would want to promote good protection. Customers that are better protected will be less likely to be aggressed upon. Such damage costs that do occur will thus be limited. The better protected, the more limited those costs for the insurance companies and the more profits. Such insurance companies will furthermore promote a tendency for family households and communities to increase property values and development.

It is "[t]his close affinity between insurance and defense" that would provide a check against coercion. "Coercive acts," as they write, "are destructive to values, and value-destruction is expensive for insurance companies." --- These are major points, and points that one cannot so easily or so simply dismiss. And this goes many times over for those individuals who already subscribe to some free market principles. Market principles apply across the board because they work.

Just as other products and services behave on the free market, the economic service and production of security too "constantly moves toward a situation of maximum order and productivity."

Dealing With Coercion

Man that commits a genuine crime does not do so against "society," but to an individual or to a group of individuals. Vengeance, say the Tannehills, is not justice. It creates a double loss: for the victim and the criminal. Instead, the criminal should be forced to pay (reparations) for all of the damages he has caused, as far as possible.

Private insurance companies would instantly redeem their clients, as their contract spells out. For example, if a car was stolen, the company may give the victim a temporary car for the time being. The company would gather up all evidence it can and go after and find the thief and car. If they caught the car and the criminal, they would take the car and get the criminal to pay for the expenses of getting the car back. If the car was damaged, they would get the criminal to pay for the damages and expenses of the company to perform this. Etc. He also would be fined additionally for any other kinds of losses that he directly or indirectly brought upon his victim.* The criminal might disagree with the expenses. He would presumably (but not a requirement) belong to another insurance company. The insurance companies would have both the parties go to a third party arbitration service.

[T]he arbitration agency’s service would be the rendering of just decisions, and since justice is the basis on which they would compete in the market, the arbiters would make every attempt to fix reparations at a fair level, in accordance with market values. For instance, if the defense company had run up an excessively high bill in apprehending the aggressor, the arbiters would refuse to charge the aggressor for the excessive expense. Thus, the defense company would be forced to pay for its own poor business practices instead of “passing the buck” to someone else.

A possible protest someone may have is that an innocent man may go down by someone richer or whatnot. One must, however, keep in mind that cronyism is just as likely under the current climate, but it is more likely now because the court systems are monopolistic versus competitive. As long as people demand services that are fair, as most people do today, such concerns will be minimized in a free market. Competition is what will keep them in check. For example, a company could watch its neighboring competitor and advertise if it does something (intentionally or unintentionally) bad.

A further guarantee against the possibility of an innocent man being railroaded is that every individual connected with his case would be fully responsible for his own actions, and none could hide behind legal immunity as do governmental police and jailers. If you knew that a prisoner put your custody to work off his debt could, if innocent, demand and get reparations from you for holding his against his will, you would be very reluctant to accept any prisoners without being fully satisfied as to their guilt.

The criminal will also have to suffer consequences of increased discrimination against him. An insurance company would increase his rates. His "credit history" (see above), so to speak, would isolate him pushing him (giving him a incentive) to fix his act to a civilized man.

There are things, true, that cannot be replaced or judged as to the monetary value. "To demand that justice require the impossible is to make justice impossible." Something destroyed or killed may not have a direct monetary value, but this does not disprove the reparations system of justice, as our authors reason.

The highest possible limit on the amount of reparations is, obviously, the aggressor’s ability to pay, short of killing his incentive to live and earn. The lowest limit is the total amount of economic loss suffered (with no compensation for such non-exchangeables as anxiety, discomfort, and inconvenience). The reparations payment must be set somewhere in the broad range between these two extremes. The function for the arbitration agency would be to aid the disputants in reaching a reasonable figure between these two extremes, not to achieve the impossible task of determining the monetary value of a non-exchangeable.

Through the competitive free market, such things would be eventually standardized to the market’s configuration to please customers. Language and grammar need no dictator-----law does not either.

Each reparation claim would be a complex combination of compensations for losses of various kinds of exchangeable and non-exchangeable values. For example, if a hoodlum beat a man and stole $100 from him, the aggressor would be required to pay not only to return the $100 but also to pay the victim’s medical bills, his lost earnings, compensation for pain and suffering, and reparations for any permanent injuries sustained. . . . Each reparation claim is also a highly individual matter, because the destruction of the same think may be a much greater loss to one man than to another. While the loss of a finger is tragic for anyone, it is a much more stunning blow to a professional concert pianist . . .

Murder too would be dealt with. Obviously, the murder would be dealt with those that are connected with the deceased victim, such as the family. (The same above reasoning applies.) But what about a person who cannot be so easily tied into connection with other individuals? First, one's insurance company would want to go after such an individual. (Plus the public would demand that they do.)  But what if someone did not even have such an insurance agency?

[T]he aggressor would still owe a debt . . . In a free-market society, unowned wealth [such as the land property that the victim owned] would belong to whatever person first went to the trouble of taking possession of it. In regard to the debt owned by an aggressor to the estate of his victim, this would mean that anyone who wished to go to the trouble and expense of finding the aggressor and, if necessary, proving him guilty before professional arbiters, would certainly deserve to collect the debt. This function could be performed by an individual . . . or by a defense agency or an insurance company. Insurance companies would be most likely to take care of this kind of aggression in order to deter violence and gain customer good will.

Rectification of Injustice

Depending on the criminal in question, one might be able to act rationally enough to pay his debt to the victim in payments while working in normal conditions. Others might have to be forced into paying back their debt by going to a "debtors workhouse." They (not the victims) would have to pay the expenses of living there and the transportation back and forth to work. The level of security would depend on the given criminal.  "[S]ince no arbitration agency could afford the reputation of sending aggressors to a debtors workhouse where there was ill treatment of the inmate" foul play would be minimized far more than they are now. (Just think of the rotten conditions that today's government manages them. It's socialism in action.) Secondly, what these companies are looking for is for the recovery of losses they have suffered. They want to redeem their losses as quickly as possible. They would be crippling that possibility by mistreatment.

Such a system would also lower the "gains" any criminal was trying to make. Not only would he have to pay his debt back, but also that of arbitration and any kind of losses that the victim consequently suffered as a result of the initial aggression. (*Respecting and deriving property rights also implies that the criminal should lose his rights to the extent he has taken them away from his victim. How far this would principle would be used would be worked out in the competitive market, but it would be an underlying principle. See Rothbard's Ethics of Liberty.)

Because it would be in the insurance company’s interest to have the aggressor’s reparations installments as large as possible, it would have him confined to no greater degree than his own actions made necessary, since closer confinement means greater expense, which means less money left for reparations payments. Thus, it would be the aggressor himself who would determine, by his character and his past and present behavior, the amount of freedom he would lose while replaying his debt and, to a certain degree, the length of time it would take him to pay it. Furthermore, at any time during his confinement, should the aggressor-debtor show himself to be a good enough risk, the insurance company would find it in their interest to gradually decrease his confinement----and excellent incentive to rational behavior.

What about a guy that commits small acts of robbery? Like the Tannehills write, if he got caught, he still would have to pay for things like arbitration or the detectives. (*See above.) And, perhaps even more importantly in a case like this, he would lose his reputation. This would make him isolated, weak, and vulnerable. No insurance company would do business with him unless he tried to fix his act and, if he did, he would have to pay high rates because he would be such a liability.

It may be objected that some men will attempt to take advantage of a free-market system of dealing with aggression. This is true, as it is true of any other social system. But the big advantage of any action of the free market is that errors and injustices are self-correcting. Because competition creates a need for excellence on the part of each business, a free-market institution must correct its errors in order to survive. Government, on the other hand, survives not by excellence but by coercion; so an error or law in a governmental institution can (and usually will) perpetuate itself almost indefinitely, with its errors usually being “corrected” by further errors. Private enterprise must, therefore, always be superior to government in any field, including that of dealing with aggressors.

Utopia is impossible. Mistakes will happen-----that is life. Just as government judges can make mistakes, so too could private ones. Again, the fundamental problem and limitation for governmental management is there exists no market competition to increase their efficiencies or cut their mistakes.

Warring Defense Agencies and Organized Crime

Would not "anarchy" and chaos break out because there is no ultimate judge? There are several problems with believing that. Many assume, the authors write, that libertarianism would be like two (or more) governments competing with each other. It is incorrect to believe this because governments are coercive territorial monopolists. When they get into conflict with each other, it is eliminative. That is, only one can stand in controlling one territorial area.

As said earlier, under libertarianism one can respond to physical violence and, if necessary, retaliate to receive stolen loot. This is always true under a free market system. Under statist conditions you cannot do this, and you obviously cannot get back loot stolen from government itself.

Any defense companies that were to enter organized crime would be handicapped by the forces in the market place. Unwarranted aggression is costly. It is expensive. States can externalize the costs on people that must be forced to pay into it. This is not true under the market. People would withdraw being a customer to such a criminal organization. They would withdraw their funding of it. As long as there are some rational people that do this, aggression of this nature will be limited. This cannot happen in a society governed by government. It thus would make a free society less war-like. (I myself would never claim that no "wars" would never occur, man being what he is. Just like monarchical wars are better than democratic wars, stateless wars would be preferable to state wars. Likewise this is the same for frequency.)

Other companies would be on the lookout to isolate an aggressive company and when/if necessary retaliate against it if it aggresses against their clients. Insurance companies would withdraw their support and have their customers avoid any affiliation with the outlaw company or those that support it.

Furthermore, people that work in such an aggressive company would be more likely to quit, otherwise they would have to pay the consequences of their actions, just as those "higher up" would also. Compare this to the government's police or soldiers; they are protected from brutal aggression in so many cases. Unlike "relativists," libertarianism does distinguish between aggressors and combatants or nonaggressors and noncombatants. This gives the network of insurance companies such an advantage over states.

The Tannehills call crime a form of parasitism: it can only live off the productive. And so in a completely free market society "in any long-range contest between looters and non-disarmed producers the weight of wealth and power must be on the side of the producers." The reasoning from the authors explains why wars would be much more limited. It is also why a huge large gang could not exist or easily exist in today's numbers in a free society. The large gangs today are promoted by the government by creating dangerous anti-market black markets. Government also promotes bad neighborhoods by subsidizing them contra good neighborhoods.

"The objection that a tyrant might take over is actually a devastating argument against government."

Foreign Aggression

Would a libertarian (anarcho-capitalist) society be helpless to an attack by another government? They answer that with a No.

Threats of nuclear, biological, or other "WMDs" are a real threat, of course. But even "defense" by government cannot assure protection under these kinds of attacks. It is also unlikely that a government would use weapons of mass destruction on a free territory. All governments, even the most despotic ones, depend on popular support. This popular support can range from passive acceptance to full-blown worship of the State. Attacking a free territory, a non-interventionist society which has not engaged in aggressive activity, is extremely unlikely to win support with the public. Any attack would be much more likely to be conventional.

A government that wished to take the territory over or control it by a puppet government would wish to instead occupy it with troops. But it is this that would give the free people a tremendous upper-hand. There exists no central government to takeover and control. Where would the aggressive state attack? The aggressor would be in a Vietnam (or Iraq) situation. Even an inferiorly armed population can beat an occupying force. History provides an abundance of examples. Private groups win over government ones. (It is when we speak of conventional wars between one state and another do we see a clear victor.) And, due to the fact that these private groups will have developed on a competitive and always unifying free market to help provide law and security, these groups will be much stronger than anything we have seen. Moreover, people in a free society would be far more armed than they currently are today. They will be ready.

Families and large businesses would want insurance and protection from foreign aggression. When it is felt that the chance of aggressive attack is high, people would invest more in insurance and protection. We can only speculate on what this may entail. It may mean several missile defense systems, for one. It may mean insurance coverage and incentives for building better infrastructures. The possibilities are endless in competitive conditions when men are free to specialize in the division of labor, and when the bulk of the people have adopted libertarian ethics, which is the prerequisite of a free society.

'Freedom's The Answer. What's The Question'?

Libertarianism, property understood, is a "radical" concept. This is true. Someone just stumbling into The Paleo Blog would almost certainly respond negatively, at least at first. That is completely understandable. And someone hearing this for the first time probably has dozens of questions. For myself, the more I read and study economics, history, political philosophy and studies on the economics of the production of security (defense), the more I get convinced.

I do not believe someone's journey can start and end by just reading The Market for Liberty. (Nor could it end with this entry!) This is why I recommend people to research more. Chaos Theory [pdf] by Robert Murphy is good company with the Tannehills' book. Rothbard's Ethics of Liberty and For a New Liberty are too very important in this field.

While I myself have disagreements with The Market for Liberty, I give it my high praise. If you keep an open mind, it might just radicalize you into a anarcho-capitalist.

For a technical note, I agree with their view that some of the libertarian principles of an "absolute" theory of justice (that appears in The Ethics of Liberty) cannot solve everything. So I agree with Tannehills on that. I also agree, then, with Robert Murphy, and his two essays in Chaos Theory too, then. (Although, my view is somewhat in the "middle ground.")

I disagree on a few parts with this book. One of which is their view of radical individualism...

People forget that the State has taken over the features of the social and cultural intermediate institutions. By doing that, atomized individualism occurs. So in a free society, these (voluntary, "market") institutions would reassert themselves. A major source of private law would come from them. Community would develop in a free society. Voluntary social hierarchy, like in business, would exist. I find it somewhat destructive not to talk about such things. Maybe it is a Ayn Rand thing(?), I don't know. And here it is where I do not blame many traditional conservatives for looking badly at anarcho-capitalism. It is not family-church-community that is artificial; it is the State. When we substitute the State to replace the extended family, for instance, it only calls for its destruction. The "loose individual" is created-----a point that the late conservative Robert Nisbet constantly and relentlessly hit on and shown.

"Nation," and I use this term loosely, too is not entirely artificial. It would just take on a different meaning in anarcho-capitalism. Obviously, different parts of the world have different cultures and languages. These are natural outgrowths. A nation is an outgrowth of extended families to clans to nations. Is a "national" identity important? To a certain degree, yes. After all, a division of labor needs the glue of communication (language) to be diversified and complex.

See: A Moral Imagination to a Diabolic Imagination / Government’s Brutal Attack on the Family / Culture, Literature, and Private Communities / Speaking of Left-Libertarians / Joe Sobran on The Age of Nonjudgmentalism / Ideas, Consequences, and Libertarianism / Culture - Social - Language - Religion Ties Matter

"Most people, writes Murray Rothbard, including most political theorists, believe that once one concedes the importance, or even the vital necessity, of some particular activity of the State — such as the provision of a legal code — that one has ipso facto conceded the necessity of the State itself. The State indeed performs many important and necessary functions: from provision of law to the supply of police and fire fighters, to building and maintaining the streets, to delivery of the mail. But this in no way demonstrates that only the State can perform such functions, or, indeed, that it performs them even passably well."

Read Here. (And Listen Along.)

Law and order was not always through government and statism. A difficulty that arrives for libertarians is to try to have people think about other possible social arrangements. Thinking about the possibilities of a stateless order, which is the full expression of libertarianism, is too much for most people to even consider. They cannot see beyond the present social arrangement, as if it were the only one that existed and could ever exist.

Take, for example, Old Rightist Frank Chodorov in his book The Rise and Fall of Society, where he quotes and examines Judges 17:6 where the Bible says; "In those days there was no king in Israel, but every man did that which was right in his own eyes." Authority and judges were there, though. Law existed. Tradition and custom helped hammer them out. It was a conservative order. But these private authorities did not have the "power of coercion." This order lasted four centuries. As nomads and tribes started to settle down, "sheepherding was giving way to agriculture." The economic order changed. But then, two emergencies, says Chodorov, occurred during this time. First being that the Philistines "beaten them roundly in battle" and the second being people "lost faith in their leadership." According to the Bible, they "turned aside after lucre, and took bribes and perverted judgment."

It was because they had forsaken the rigorous tradition of their forefathers, with its insistence on self-reliance and personal integrity, that they had lost the victorious touch which carried them from Egypt to the outskirts of the Promised Land; the breakdown of the Judge system could be traced to the same lack of self-discipline. Therefore, said Yahweh, give them what they ask for [a king], but as a parting shot you might “shrew them the manner of the king that shall rule over them”; and tell them also that when they realize their mistake it will be too late to regain freedom: “The Lord will not hear you in that day.” This is an interesting comment, seeming to stress the point that when a people put their faith in a State, rather than themselves, there is no way for them to remove the noose from their necks.

So a kingdom was set up. Conscription and (limited) taxation was introduced.

Chodorov continued:

One could go behind the returns and make out a case against these revolutionists: perhaps they constituted a newly arisen landowning class and hoped to solidify their position under a kingship. More likely, fear had entered their hearts, as is usually the case when a people accustomed to success are faced with adversity, and they were quite willing to swap freedom for the promise of subservient security. The search for a demigod is inherent in the human makeup; fear of the problems of life tends to weaken self-reliance and to encourage belief in a deliverer. Faith in political power is a comfortable flight from reality.

The adoption of a government did not help matters...

From the very beginning of the royal establishment the troubles of Israel multiplied. There was the usual spate of wars with the Philistines, with varying degrees of success; internal dissension, heretofore rare in the experience of the tribesmen, became common. Some followed Saul, others revolted against his rule; more exactly, they resisted the establishment of those institutions which Samuel had warned them would come with a king. But, as Samuel said, there was no way of regaining freedom once the State had made its appearance, and the Judge was soon on the lookout for a new deliverer. . . .

Later came the rise of David and Solomon. Chodorov says that one of the lessons to be learned from this is that the acquisition of political power creates the impression for the ruler (or the one seeking to rule) of having "a surpapersonal quality and to become in itself . . . a shine for public worship." The ruler acts and rules as if shielded from the consequences of his actions.

As the king was first adopted here, people still had some concept of freedom. There was some resistance to expansions of power. The propaganda of the king being ever wise and supreme takes time.

As his [the king’s] quest for power reaches beyond his purview, as it always does, he finds it necessary to delegate some of his power to and share his prerogatives with a supporting oligarchy----military, ecclesiastical (or intellectual) and, in time, commercial or industrial groups which lend themselves to his purpose in return for the special privileges he grants them.

This is exactly what Solomon did. He dressed up his temple so that the "kingship [had] an aura of omnipotence" and tied naturally arriving authorities in his pockets. Leviathan needs ideological support, after all.

Rehoboam institutionalized heavy taxation.

The designation of taxation as a yoke is a nice piece of biblical directness. A yoke is worn by an ox, a beast of burden, which by nature is incapable of claiming a property right in the products of its labors. It follows that when a human being is deprived of that right his status approximates that of an ox, and if taxation takes all he produces beyond that needed to sustain life (the wages of an ox), it can rightly be called a yoke.

Fiat money is a definite impossibility on the unhampered free market. Only a statist market allows fiat money to come into being. So how does government turn an originally market developed hard-based commodity money into a backless and pathetic fiat paper currency? [I also covered this much more briefly in my loosely constructed highlights and notes from Walter Block's tremendous book Defending the Undefendable, which could also be called "Libertarianism in One Lesson."]

It is only once a free market money has developed and evolved that it is a possibility for the government to then regulate and monopolize the monetary system. The market place is the fountainhead of the creation of money as a solution to the many problems and limitations of a barter system. Money cannot develop apart from the market place. It is the prerequisite. Government's meddling into money only can come in later. The reason for government wanting to take control of the monetary system is simple and straightforward: It wants to obtain more revenue! What better way then to take control of the supply and management of the lifeblood of the economy, i.e. money? And in contrast to all forms of direct taxation, the bonus of appropriating revenue via monetary means is that it is indirect and unseen.

Now let us all assume that the economy of which we speak is fairly developed. The money that arose is gold (and perhaps also silver---more on this later). For government to enter the picture, it must first monopolize the minting operations. Because...., you must know, we cannot trust free individuals (evil capitalists and entrepreneurs) with such a task! Individuals will screw it up, but individuals in government are perfectly wise and trustworthy----much more so. They deserve a monopoly! (Right...?)

With the government in control of minting operations it will probably have the face of the government officials on it. (Not a pretty sight, to say the least!) Another change will be the names of these coins. Instead of terms referring to these coins in reference to weight units, they will almost certainly be replaced with other names that distort the actual means to measure "their value" relative to each other. That is to say, to quote Murray Rothbard------"Instead of using grains or grams of gold or silver, each State fostered its own national name in the supposed interests of monetary patriotism: dollars, marks, francs, and the like." [What Has Government Done to Our Money, p 70] The public at large with myopic credulity will start to judge that money and the government are interlocked and unbroken operations. It is then governments have always started to debase money. Weight and quality therefore decreases. What the government extracts from this, government will add to its own pocket and at the expense at the public at large. With no doubt at all, this just comes to show that any kind of original assertion that such an industry must be socialized for the public's protection completely falls flat as blatantly absurd. Under free market conditions, such activity would be considered fraud and even if it did occur (man being what he is----imperfect) would be severely limited to a complete stop because of competition. Competitive conditions would allow people to seek honest and high quality companies. Such a possibility is, by definition, not possible under governmental management.

For historical examples of debasement, here is Rothbard:

Rapid and severe debasement was a hallmark of the Middle Ages, in almost every country in Europe. Thus, in 1200 A.D., the French livre tournois was defined at ninety-eight grams of fine sliver; by 1600 A.D. it signified only eleven grams. A striking case is the dinar, a coin of the Saracens in Spain. The dinar originally consisted of sixty-five gold grains, when first coined at the end of the seventh century. The Saracens were notably sound in monetary matters, and by the middle of the twelfth century, the dinar was still sixty grains. At that point, the Christian kings conquered Spain, and by the early thirteenth century, the dinar (now called maravedi) was reduced to fourteen grains. Soon the gold coin was too light to circulate, and it was converted into a sliver coin weighting twenty-six grains of sliver. This, too, was debased, and by the mid-fifteenth century, the maravedi 1.5 silver grains, and again too small to circulate. [pp 71-2]

Legal tender laws, in short, were created to try to make sure that money transactions would not take into account government's debasement and mismanagement. With these laws people were forced to trade in terms of what was officially declared by the State. One could no longer judge money in terms of its weight or quality. But, obviously, doing this would only reinforce "bad" money to replace "good" money in the market place. Gresham's Law would come into effect. Such action is nothing but a form of price control. Contra economic ignorance most people have, a price control (be it on housing or job wages) does not overturn the laws of economics----anymore than the quadratic formula to a second degree polynomial can be overturned. Something that is artificially undervalued will then be driven out of the market place to be overrun with that which is artificially overvalued.

Rothbard sums it up:

Government imposes price controls largely in order to divert public attention from governmental inflation to the alleged evils of the free market. ... “Gresham’s Law”----[tells us] that an artificially overvalued money tends to drive an artificially undervalued money out of circulation----is an example of the general consequences of price control. Government places, in effect, a maximum price on one type of money in terms of the other. Maximum price causes a shortage----disappearance into hoards or exports----of the currency suffering the maximum price (artificially undervalued), and leads in circulation by the overpriced money. [p 72]

Bimetallism is a vivid illustration of this. (More on this in a bit.) This economy would have two moneys living side-by-side.* Say they are gold and silver. Gold is used in large transactions and silver in smaller ones.

*(Although this is unlikely in a totally free market that has sufficiently developed into a very complex and advanced division of labor. This is because with two moneys, in effect, there would be a kind of "barter" between them. Only relatively less complex markets could, for a time, have two moneys. The only reason an economy can, in "the long run," hold onto two moneys is with interventions and distortions from a statist economy.)

To take a small step back, free markets are good because they are free. Earth is not the Garden of Eden: Life is not constant nor do goods exist in infinite supply. A good is considered an economic means because it is used in the attainment of substituting a better state of affair for a lesser one. It is used as an economic means as such only because it is scarce; otherwise it would not be considered an economic good.  In the "real" world of scarcity and uncertainty, unlike the Garden of Eden, supplies and demands change. So too with money: there is a supply and a demand. It is like any other commodity that is subject to the market and economics. (The difference is that, basically, demand comes from its use as a medium of exchange unlike something to be consumed. Its value is relative to the infinite possible exchanges that can be made with it. It is relative to all of the other "regular" goods and services, and hence the supply of a hard free market money does not matter once it is established. No social benefit come from an increased supply. On the other hand, an increase in the supply of a "regular" good does---i.e., it increases the standard of living.) Artificially trapping them in some statist program only leads to practical failure.

Placing a kind of price control (bimetallism) on the relationship, for example, between our gold and silver society would only distort the market signals. The ratio between how much silver trades into gold (and vice versa) can never be constant. (Life is not constant!) Government cannot change that fact. In the past when governments were to put an exact ratio between the two all that would occur is that when one, be it gold or silver, was artificially overvalued it would be overly used and the one artificially undervalued would be stored up and driven off the market. And since life is indeed not constant, flip-flops take place to what is being undervalued and what is being overvalued. Under that condition, they switch to which is in the market and which goes underground. As we can see, the price control makes the market chaotic---all in the name for making it "stable"!

Here we see a constant with government....Government comes in and all of these bad consequences and unintended  consequences occur. Next the call for more government involvement is asked for. Then more bad consequences occur. Next more government is called for. ... Etc.

The cycle must be stopped. The answer to previous regulation is not more regulation but deregulation. (This means getting government out of the picture. No "in between" solutions will work or are acceptable.)

Well, the process should have been stopped. Instead to "fix" this chaotic bimetallism event, the government just chopped off one of the moneys and forced everyone to stick with just the one.

So, to recap: Government takes over minting. It debases money. Creates legal tender laws. The next step is inflation a.k.a. counterfeiting. And then the creation of a central bank. And ultimately moving to a completely backless paper money.

To do this it must encourage the use of paper money instead of gold as a substitute. Government gives paper tickets or "token coins" as substitutes for "their" gold. But they start to print more tickets than are backed in gold. Counterfeting happens. Wealth redistribution happens. The monopolization and cartelization of the banking system must then take place. But a reasonable question to ask, is this: Why would the banks cooperate with a scheme just to enrich the government? It is because they will benefit too!

In a free market, how are banks beneficial? Firstly, and most obviously, they safe keep one's money. They are, in this regards, similar to renting out storage space. (From this it is straightforward to see that if a bank engages in handing out more paper tickets than gold it holds in storage, it is no different morally than a storage place taking one's items away from their customers as they promise to guard them.) Safekeeping also allows for a more easily allowable environment for exchange of money between individuals. Secondly, banks provide increased transactions between savers and entrepreneurs. People can then more readily participate in the capitalistic process. However, one of the problems with the banks is that they also got into the business of facilitating "investment" transactions between the government. And these ties between the banks and government kept enlarging.

Here is what Rothbard had to say:

The problem with the investment bankers is that one of their major fields of investment was the underwriting of government bonds, which plunged them hip-deep into politics, giving them a powerful incentive for pressuring and manipulating governments, so that taxes would be levied to pay off their and their client’s government bonds. Hence, the powerful and baleful political influence of investment bankers in the nineteenth and twentieth centuries: in particular, the Rothschilds in Western Europe, and Jay Cooke and the House of Morgan in the United States. [Makings Economic Sense; p 278]

Today banks

make money by literally creating money out of thin air, nowadays exclusively deposits rather than banking notes. This sort of swindling or counterfeiting is dignified by the term "fractional-reserve banking," which means that bank deposits are backed by only a small fraction of the cash they promise to have at hand and redeem. (Right now, in the United States, this minimum fraction is fixed by the Federal Reserve System at 10 percent.) [pp 279-80]

Example:

Let’s see how the fractional reserve process works, in the absence of a central bank. I set up a Rothbard Bank, and invest $1,000 of cash (whether gold or government paper does not matter here). Then I “lend out” $10,000 to someone, ether for consumer spending or to invest in his business. How can I “lend out” far more than I have? Ahh, that’s the magic of the “fraction” in the fractional reserve. I simply open up a checking account of $10,000 which I am happy to lend to Mr. Jones. Why does Joes borrow from me? Well, for one thing, I can charge a lower rate of interest than savers would. I don’t have to save up the money myself, but simply can counterfeit it out of thing air. ... Since demand deposits at the Rothbard Bank function as equivalent to cash, the nation’s money supply has just, by magic, increased by $10,000. The inflationary, counterfeiting process is under way. [p 280]

Of course, there is a limit to such activity without the Fed. Under competitive conditions, a bank could easily go bankrupt. All for the good, though, because profit-and-loss is an important part of a free market system. When government instead makes inflation uniform, it vaporizes away restraint, and then produces moral hazard whereas banks engage in riskier activity than they would otherwise do.

Back to Rothbard:

The bluntest way for government to foster inflation, then, is to grant the banks the special privilege of refusing to pay their obligations, while yet continuing in their operation. While everyone else must pay their debts or go bankrupt, the bands are permitted to refuse redemption of their receipts, at the same time forcing their own debtors to pay when their loans fall due. The usual name for this is a “suspension of specie payments.” A more accurate name would be “license for theft;” for what else can we call a governmental permission to continue in business without fulfilling one’s contract? [What Has Government Done To Our Money?; p 78]

The War of 1812 was the first example here in America:

Most of the country’s banks were located in New England, a section unsympathetic to America’s entry into the war. These banks refused to lend for war purposes, and so the government borrowed from new banks in the other states. These bands issued new paper money to make the loans. These banks issued new paper money to make the loans. The inflation was so great that calls for redemption flooded into the new bands, especially from the conservative nonexpanding banks of New England, where the government spend most of its money on war goods. As a result, there was a mass “suspension” in 1814, lasting for over two years (well beyond the end of the war); during that time, banks sprouted up, issuing notes with no need to redeem in gold or silver. ... This suspension set a precedent for succeeding economic crises; 1819, 1837, 1857, and so forth. [pp 78-9]

It is this that fostered what has been called "wildcat banking." Typically statists will point to this as a so-called "market failure" whereas the government needs to come to the rescue. Yet, how could government possibly be the solution? (Again, calling for additional regulations on top of previous regulations is only to call for more trouble. It is like a man hitting one's head a second time to "cure" the first time he hit his own head.) Like usual under these conditions of economic blowback, the ignorant cries of more governmental interventionism were screamed for. Government and (governmentally-connected) banks propagandized the public to accept the further centralization of monetary power.

Of course, the correct answer to the cure of this problem of bank runs would be to get the government out of the picture altogether. Respecting the free market means the recognition that fractional reserve banking to be a fraudulent activity. Our interest is in the free market because it produces the highest wealth for all and because it is the only morally defensible position to have (that is to say, it is the only ethical system that respects the right to person and property of each and every individual and all other ethical systems do not). Government, on the other hand, has an interest in power. To gain this power it must appropriate resources out of the hands and at the expense of the free market. Government thus comes in to "fix" the problem of bank runs by the creation of a "lender of last resort."

A Central Bank (the Fed) is thus born. It allows all banks to expand uniformly. It becomes the "bankers' bank" because they must come to it. Instead of banks being allowed by government to print up their own notes, the Fed gets a monopoly on that operation. For a time the Fed was limited because people could still demand that they redeem their money back into gold. Even more pronouncedly was the fact that international competition could force the Fed's hands. So it then abandoned the gold standard altogether, where the only thing left was paper. "In short," writes Rothbard; "government has finally refused to pay its debts, and has virtually absolved the banking system from that onerous duty."

So today say the government wishes to inflate the money supply. What does it do? The Federal Reserve will then buy bonds in the market. These bonds will generally always be U.S. government securities, but it can be anything. The money used to do this will have been created----literally----from nothingness. This money falls into the hands of the bond seller. To make use of it they then deposit it into their bank. This bank then, because of law, must go to their "bankers bank"-------i.e., the Fed. The money in the Fed is the bank's reserves. But, due to fractional reserve banking laws, the bank now, "as checks and reserves seep out to other banks" inflate off the original money ten times.

Socialization always leads to failures and disasters. The above is just a partial sketch of my understanding (hopefully correct understanding-----it is still an area I need to study more). Now if I explained the basic outline of this process adequately and understandably, maybe someone out there still thinks "So what?". So what indeed(!)... Someone that believes in the freedom of the individual will not respond such a way. But also, the counterfeiting process is an indirect form of taxation that will hurt "us little people" the most. This is because counterfeiting money causes inflation. Inflation redistributes wealth from us to the powerful (government and its connected friends). It is like if I stored some of my valuables in a safe and government were to literally break into it and take from it. Our standard of living goes down----especially those on "fixed incomes." It also has a lot of other consequences. The Great Depression is the most clear example. Boom-and-busts are caused by distorting the market process of rational calculation. A market economy depends on calculation (something government completely lacks) but it is with inflation that distorts these calculations and creates the illusion of capital buildup. A bubble grows until it bursts. Inflation also shifts people into spending and debt versus savings. And beyond all of this, it allows the government to take control of the lifeblood of the economy. All of this "nation building" or empire management would be a lot more difficult, if not impossible, without the Fed.

For those that believe in free markets and also (implied in believing in free markets) are against empire, getting rid of the Fed and eventually having a complete separation between government and money