By far the most common objection to the idea of a stateless society is the belief that one or more private Dispute Resolution Organisations (DROs) would overpower all the others and create a new government. This belief is erroneous at every level, but has a kind of rugged persistence that is almost admirable.

Here is the general objection:

In a society without a government, whatever agencies arise to help resolve disputes will inevitably turn into a replacement government. These agencies may initially start as competitors in a free market, but as time goes by, one will arise to dominate all the others economically, and will then wage war against its competitors, and end up imposing a new State upon the population. The instability and violence that this “DRO civil war” will inflict upon the population is far worse than any existing democratic State structure. Thus, a stateless society is far too risky an experiment, since we will just end up with a government again anyway!

This objection to an anarchic social structure is considered self-evident, and thus is never presented with actual proof. Naturally, since the discussion of a stateless society involves a future theoretical situation, empirical examples cannot apply.

However, like all propositions involving human motivation, the “replacement state” hypothesis can be subjected to logical examination.

Premises

The basis of the “replacement state” hypothesis is the premise that people prefer to maximise their income with the lowest possible expenditure of energy. The motivation for a DRO to use force is that, by eliminating all competition and taking military control of a geographical region, a DRO can make much more money than through free market competition, and that it is worth it to invest resources in military conflict in order to secure the permanent revenue source of a new tax base.

We can fully accept this premise, as long as it is applied consistently to all human beings in a stateless society. To make the “replacement state” case even stronger, we will also assume that no moral scruples could conceivably get in the way of any decision-making. By reducing the “drive to dominate” to a mere calculation of economic efficiency, we can eliminate any possible ethical brakes on the situation.

Starting point

Let us start with a stateless society, wherein citizens can voluntarily choose to contract with a DRO for the sake of property protection and dispute resolution. Each citizen also has the right to break their contract with their DRO.

There are essentially three possible ways that a DRO could gain military control of an entire region:

• By secretly amassing an army, and then suddenly unleashing it upon all competitors.
• By openly amassing an army, and then doing the same thing.
• By posing as a voluntary “Defence DRO,” amassing arms supposedly for the legitimate defence of citizens, and then turning those arms against the citizens and instituting itself as a new government.

There is one additional possibility, which is that a private citizen can try to assemble their own army.

Let’s deal with each of these in turn.

The secret army

In this scenario, let’s say that a DRO manager called “Bob” decides that he is tired of dealing with customers on a voluntary basis. He decides he is going to spend company money buying enormous amounts of armaments and training an army.

Let us assume that Bob’s DRO has annual revenues of five hundred million dollars a year, and profits of fifty million dollars a year.

The most immediate challenge that Bob is going to face is: How on earth am I going to pay for an army? Given that, in a free society, there is no way of knowing exactly how many citizens are armed—or what kinds of weapons they have—it would be necessary to err on the side of caution and assemble a fairly prodigious and overwhelming army to gain control of an entire region, otherwise Bob’s investment would be entirely lost in a military defeat. Such armies are scarcely cheap. For the purposes of this argument, let’s say that it is going to cost five hundred million dollars over five years for Bob to assemble his army—surely a low-ball estimate. How is he going to get the money to pay for this?

Raising rates

The most obvious way for Bob to raise the extra five hundred million dollars is to charge his customers more. The five hundred million dollars Bob needs represents more than ten years of his DROs annual profits of fifty million a year (reinvesting the fifty million for five years at ten percent yields approximately eight hundred million). Thus, in order to pay for his army within five years, Bob is going to have to more than double his prices. Since we have already assumed that it is Bob’s greed that makes him want to create a new government—and that this greed is common to all citizens within the society—we can also assume that his customers share his motivation. Thus, just as Bob wants to have an army so that he can maximise his income, his customers just as surely do not want Bob to have an army, for exactly the same reasons. The moment that Bob informs his customers that he will now be charging them more than double for exactly the same services, he will lose all his customers, and go out of business. Sadly, no army for Bob.

Full disclosure

Perhaps, though, Bob recognises this danger, and plans to keep his customers by telling them that he is raising their rates in order to fund an army. “Help me buy an army by paying me double your current rates,” he tells them, “and I will share the plunder I’ll get when I take over such-and-such a neighbourhood!” Even if we assume that Bob’s customers believe him, and are willing to fund such a mad scheme, Bob’s secret is now out, and society as a whole—including all the other DROs—have been informed of Bob’s nefarious intentions. Clearly, all the other DROs will immediately cease doing business with Bob’s DRO. Since a central value of any DRO is its ability to interact with other DROs—just as a core value of a cell phone company is its ability to interact with other cell phone companies—Bob’s DRO will thus be crippled. In other words, Bob will be more than doubling his rates for many years—while providing a far inferior service—for a highly uncertain and dangerous “profit.”

In addition, Bob’s bank would immediately cease doing business with him, rendering him unable to pay his employees, his office rental, or his bills. Bob’s electricity company will cease supplying electricity, he will find his taps strangely dry, his phones will be cut off, and many other misfortunes will arise as a result of his stated desire to become a new dictator. It is hard to imagine him lasting five days, let alone retaining all of his paying customers at double the rates for the five years required to build his army!

Even if all the above problems could somehow be overcome, it is hard to imagine that Bob’s customers would be happy to arm Bob in the hopes of sharing in his plunder. Unlike the government, which can tax at will, DROs must actually protect their customer’s property in order to retain their business. Given that those who contract with DROs are those with the most interest in protecting their property, it makes little sense that they would fund Bob’s DRO army, since they would have no actual control with that army once it was created, and thus no way of enforcing any “plunder contract” created beforehand. In a free society, people would not try to “protect” their property by funding a powerful army that could then take it away from them at will. That sort of madness requires the existence of a government!

Alternative funding

Perhaps Bob will try to fund his army in other ways. He may try and borrow the money, but his bank will only lend him the money if he comes up with a credible and measurable business plan. If Bob’s business plan openly states his desire to create an army, his bank would cease supporting him in any way, shape, or form, since the bank would only stand to lose if such an army were created. If Bob took the money from the bank by submitting a fraudulent business plan, the bank would be aware of this almost immediately, and would take the remainder of the money back—and impose stiff penalties on Bob to boot! Again, no army for Bob.

What if Bob tried to pay for his army by reducing the dividends he was paying to shareholders? Naturally, the shareholders would resent this, and would either have him thrown out, or would simply sell their shares and invest their money elsewhere, thus crippling Bob’s DRO. Perhaps Bob would try paying his employees less, but that would only drive his employees into the arms of other DROs—also destroying his business.

It is safe to say that it is practically impossible for Bob to get the money to pay for his army—and even if he got such money, his business would never survive such a dangerous transgression of social and economic norms.

There are other dangers, however, which are well worth examining.

Defence DROs

The most likely threat would seem to come from “Defence DROs,” since those agencies would already have weapons and personnel that might be used against the general population. However, this would be very difficult for two main reasons. First, “Defence DROs” would require investment and banking relationships in order to grow and flourish. Given that investors and banks would not want to fund an army that could steal their property, they would be certain to insert myriad “fail-safe” mechanisms into their “Defence DRO” contracts. They would make sure that all arms purchases were tracked, that all monies were accounted for, and that no secret armies were being assembled.

“Defence DROs” would also be subject to the same kinds of funding problems as Bob’s DRO. Let’s say that Dave is the head of a “Defence DRO,” and wakes up one day seized by the desire to assemble his own army and pillage society.

First of all, citizens would never contract with any “Defence DRO” that would not submit to regular audits of its weapons and accounts to ensure that no secret armies were being created. If Dave decides to bypass this contractual obligation, and start secretly funding his own army, how is he going to pay for it? The moment he raises his rates without increasing his services, his customers will know exactly what he’s up to, and withdraw their support. Bye-bye army. Dave’s funding would also be subject to all the other problems raised above.

It can thus be seen that there is no viable way for any DRO to pay for a secret army without destroying its business in the process. Armies are only really possible when the government can force taxpayers to subsidise them.

Independently wealthy?

Perhaps, instead of Bob or Dave, we have a privately wealthy individual named Bill, a multi-billionaire who decides to raise an army and institute himself as a new dictator. Due to his immense wealth, he is not dependent on any customers, employees, or shareholders. Let us say that he can pay for an army out of his own pocket, immediately.

Bill’s challenge, of course, is that in a free society, he cannot exactly pick up a complete army at his local Wal-Mart. Armies are fundamentally uneconomical, expensive overhead at best, and thus it seems likely that geographical defence in a free society would be limited to a couple of dozen nuclear weapons, to deter any potential invader. Thus even if he could get a hold of one, buying a nuke would not help Bill very much, since he would be unable to use it to overwhelm all of the other “Defence DROs.”

What about more conventional weapons? Part of the service that “Defence DROs” would offer to subscribers would be a guarantee that they would do everything in their power to prevent the rise of an independent army—either of their own making, or of anyone else’s. Thus arms manufacturers would have to provide rigorous accounts of everything they were making and selling, to be sure that they weren’t selling arms to some secret army, probably in the foothills of Montana. If people were really worried about the possibility of someone creating a private army, they would only do business with “Defence DROs” that guaranteed that they bought their arms from open and legitimate arms dealers—subject to independent verification, of course.

Thus when Bill came along trying to buy five hundred million dollars worth of weapons, and hire an army of tens of thousands of soldiers, one question would be: Where on earth would they come from? Arms manufacturers would not be sitting on five hundred million dollars of inventory, due to the limited demand for such products, and the costs of making and storing them. Thus the arms manufacturers would have to really crank up their production, which could not be hidden from the general population, or the Defence DROs that such extra production would directly threaten. In order to make all the extra armaments, manufacturers would have to borrow money to expand production. Where would they get this extra money from? Their banks would surely not fund such a dangerous endeavour, and would immediately notify any Defence DROs it had contracts with, and drop the rogue arms manufacturer as a customer. Defence DROs and general customers would also never do business with such a dangerous arms manufacturer ever again, thus driving it out of business.

No manufacturer would ever expand production for a “one time” purchase, any more than you would buy a car to make a single trip. Also—why would an arms manufacturer sell deadly weapons to a private individual, knowing that this individual would be able to use those arms to steal more weapons from the manufacturer?

Secondly, even if Bill could somehow get his hands on the necessary weapons, where would these tens of thousands of new troops come from? In a stateless society, the military would not be exactly the same kind of “in demand” career that it is today. In order to assemble an army of tens of thousands of men, Bill would have to advertise, recruit, pay them, train them, etcetera. This would be impossible to hide. Since it would be completely obvious that Bill was assembling an army, what could people in society conceivably do to stop him?

First of all, if this were a potential risk, his bank would have a clause in its service agreement giving it the right to refuse to honour any payments clearly designed to fund a private army. Secondly, no DRO would do business with Bill—or his soldiers—the moment that it became apparent what he was up to. This would mean that none of Bill’s soldiers would have any guarantees that they would get paid, grocery stores would not sell them food, electricity companies would cut them off, petrol stations would not sell them petrol, etcetera. When society as a whole wants to stop doing business with you, it becomes very hard to get by.

The question of profit

Remember, we began this section with the premise that someone would want an army in order to make money. Let us see if this can be achieved, even if all the above obstacles can somehow be overcome.

Let us say that our first friend “Bob” can somehow get his army—the question is: Can he make that army pay?

Remember, it cost Bob five hundred million dollars over five years to assemble his army—let us say that it costs another one billion over the next five years to subdue a reasonably-sized region, due to the loss of life and equipment involved in combat. What kinds of financial returns can Bob expect?

If you know that Bob’s army is going to be at your house in two weeks, and there is no way to stop it, you would just pull a “scorched-earth Russian defence” and leave, right? You would take everything of value with you, and perhaps destroy everything that you could not bring. Thus, what would Bob’s army end up getting control of? Not much.

However, let us imagine that Bob’s army could somehow seize assets that would be worth something. How much would they have to steal in order to make a profit?

First, let us look at the alternatives, or the opportunity costs of Bob’s army.

Bob has to invest one hundred million dollars each year over five years to assemble his army—what does that cost him overall? If Bob invested the one hundred million back into his DRO instead, he will likely get a ten percent return on investment. In five years of compound returns, that translates to approximately eight hundred million dollars.

Then, Bob has to invest another billion dollars over the next five years invading a series of neighbourhoods. How much does that really cost him? One billion, six hundred million dollars, or one billion invested at ten percent over five years. But that’s not all—the eight hundred million above would also have gained ten percent per year over the remaining five years, resulting in a total of one billion, three hundred million dollars.

Thus Bob’s five years of preparation and five years of military rampaging have cost him over three billion dollars. Given the enormous risks involved in such an endeavour, investors would likely demand at least a twenty to one pay off—similar to the software field. Thus Bob would have to steal well over sixty billion, given that he would likely want to keep some money for himself.

Where would this sixty billion dollars come from? The burned-out houses? The abandoned cars? It is hard to imagine that anything Bob got his hands on would be worth very much at all.

Also, Bob has wrecked an economy that was enabling him to generate a ten percent annual return on his investments—even if he steals billions of dollars, it would still be less than he would have received over the course of his life if he had just re-invested his money! Reinvestment also carries with it the considerable advantage of not exposing Bob to the risk of death through assassination or war.

What if Bob wanted to spring a surprise attack on citizens and start taxing them? Again, all the other DROs would stand to lose all their customers in such an event, and so would take all necessary steps to prevent it from occurring. They would have to provide innovative “checks and balances” solutions to potential customers in order to win them as clients, ensuring their collective vigilance against such surprise attacks. Furthermore, given that there are no borders in a stateless society, those that Bob’s army encircled would just abscond in the middle of the night, fleeing his predations.

However, even if all of the above problems can be somehow overcome, and the creation of a rogue army in a free society could become both possible and profitable, the solution to this danger is simple. Any “Defence DRO” would simply buy the trust of its clients by promising to pay them a fine in excess of any potential military profits if that DRO was ever discovered to be assembling an army. As mentioned above, DROs would simply put millions of dollars in trust, payable to any customer that could find evidence proving that a rogue army was being created. Problem solved.

When we look at the series of steps required to make the creation of a private “rogue” army economically profitable, we can see that it becomes so unlikely as to be functionally impossible. If we assume that the economic incentive of maximising profits would drive someone to consider such a course, we can easily see that the fears of inevitable private tyrannies are merely imaginary.

The “replacement state” mythology is just another ghost story invented to keep us in cages whose bars are merely fictional.