Private defence

Virtually everyone agrees that a government is needed to provide the essential service of military defence. People with an open mind may be genuinely sympathetic to the arguments for a free society. Yet they regard all the clever blueprints for an anarchist social order as hopelessly naïve, because a community based on voluntary relations would apparently be helpless in the face of neighbouring States.

This essay claims that such a view, though widespread, is completely false. There is nothing intrinsic to military defence that requires State provision. The free market can provide defence more cheaply and more effectively than the government can. It is foolish and reckless to entrust the State with the protection of civilian lives and property. Private defence forces would enjoy a tremendous advantage, and in all but the most lopsided contests would slaughter their government adversaries.

Insurance

In an anarchist society committed to the sanctity of private property and contract, insurance companies would most likely oversee defence services.1 To see how this market would operate, an analogy will be useful.

Imagine a large city located on a major fault line. Every so often, the residents endure a severe earthquake, which kills dozens of people and causes billions of dollars in property damage. To cope with the risk of such disasters, people purchase insurance for their lives and property. Policyholders pay a fixed premium, while the insurance agencies pledge to indemnify the estates of anyone who suffers bodily or financial harm during an earthquake, according to the precise terms specified in the contract.

The force of competition keeps the price of such insurance reasonable. Actuaries can estimate the expected costs per period of providing certain levels of coverage, and thus calculate the minimum premiums that would allow the insurer (all things considered) to break even in the long run. If the market rates exceed these minimum prices, new firms will have an incentive to enter the insurance market to reap the profits. Their entry would drive insurance premiums down towards the actuarially fair rates.

It is crucial to realise that the behaviour of the residents greatly influences the city’s vulnerability to earthquakes, and thus the total bill paid out by insurance companies following each disaster. Buildings, roads, and bridges can be designed with varying degrees of structural integrity and construction costs; the better the design, the greater its expense. Through their premium structure, insurance companies provide incentives for safer designs, thus defraying their higher costs. Profit-hungry businesses will thereby produce buildings and infrastructure exhibiting the optimal combination of durability and price,2 without any need for government codes and inspectors.

In addition to encouraging sturdier designs, insurance companies could use other means to reduce their exposure. They might employ teams of seismologists to forecast earthquakes and publicise these findings as a service to their customers. For those clients too poor to afford housing in quake-proof buildings, the insurance companies can construct shelters, and require that these policyholders evacuate their buildings and retire to the shelters in an emergency.3 In general, an insurance company will gladly spend funds to protect its clients and their property, so long as the expected reduction in liability claims is sufficient to justify the expenditure.

Just as the free market can provide the optimal response to dangerous earthquakes, so too can it provide the best protection from foreign militaries. Like natural disasters, wars bring widespread death and destruction. In market anarchy, insurance companies would provide coverage for these losses too, and would thus have a great financial interest in deterring and repelling military attacks.

Financing

It is easy enough to imagine a system of private mail delivery or even highway construction. In contrast, free market defence presents a conceptual hurdle, since it is not clear what would be the voluntary analogs to government taxation and military spending.

Defence from foreign aggression is a classic “public good” and as such seems the perfect candidate for government provision.4 Without the ability to extort revenues from all citizens, how could private firms raise the funds required by modern militaries? (After all, any individual citizen could refuse to buy the “product,” yet still enjoy the security made possible by his neighbours’ contributions.) On a practical level, hundreds of small, decentralised armies would surely be wiped out by a consolidated attack from a neighbouring State.

The framework described in the first section avoids these apparent difficulties. In a free society, it is not the average person, but rather the insurance companies, that would purchase defence services. Every dollar in damage caused by foreign aggression would be fully compensated, and thus insurers would seek to protect their customers’ property as if it were their own.5 Because of economies of scale, coverage for large geographical regions would likely be handled through a few dominant firms, ensuring standardised pricing and a coordinated defence.

It will be useful to elaborate on this hypothetical consolidation. Suppose we start in an initial anarchist society with no defence services at all. Imagine that the one serious military threat is invasion and conquest by a certain mercurial neighbour. The residents of this free society take out insurance policies on their lives and all major property, such that the total claims that would follow an invasion are estimated at one trillion dollars.6 The insurance agencies hire geopolitical consultants and believe that the annual risk of attack is ten percent. They must therefore collect roughly $100 billion per year in premiums to cover themselves. If the society is composed of ten million people, the per capita expenditure on insurance from foreign aggression is $10,000. On top of this hefty expense, the residents remain completely vulnerable.

In this bleak situation, an executive at the Ace insurance company has a brilliant idea. He can undercut his rivals and offer the same level of coverage for only, say, $5,000 per person—half the price charged by his competitors. He can afford to do this by spending some of his revenues on military defences, and thereby lower the probability of foreign conquest. For example, he might pay private defence agencies $40 billion per year to maintain helicopters, tanks, trained personnel, etc. and be on the constant alert to repel any attacks. If these preparations reduced the chance of foreign invasion to only, say, one-half of one percent per year, then they would “pay for themselves.” The innovative insurance executive would reap huge profits and capture the market for military liability, while the residents would enjoy increased security and lower premiums. With property safe from foreign expropriation, investment and population growth would be stimulated, allowing greater economies of scale and further rate cuts.

Free riders

Does the above system really avoid the perennial problem of private defence? That is, can it overcome the “free rider” problem? After Ace Insurance entered into long-term contracts with defence agencies, what would stop a rival firm, such as Moocher Insurance, from undercutting Ace? After all, the likelihood of property damage would be the same for Moocher’s clients as for Ace’s, yet Moocher wouldn’t spend a dime on military expenditures.

This reasoning is perfectly valid, yet the case for private defence remains strong. In the first place, the clients of the insurance companies are not homogeneous, and consequently the market for defence is far more “lumpy” than assumed in standard economic models. Although above we discussed per capita premiums, this was only to give the reader a rough idea of the expenses involved. In reality, large firms would provide the bulk of revenue for the insurance industry. The policies taken out on apartment complexes, shopping malls, manufacturing plants, banks, and skyscrapers would dwarf those taken out by individuals.

Consequently, there wouldn’t be the nightmarish bargaining problem that so worries the skeptics of private defence. The brilliant executive at Ace Insurance would be perfectly aware of the above considerations. If necessary, he would write only long-term contracts, and would make them conditional on the acceptance of a minimum threshold of clients. In other words, he would offer a package deal to the major companies, but the special, low rates would only apply if a sufficient number of these policies were sold.

It is true that this suggested remedy is rather vague. There are many interesting issues (studied in cooperative game theory) concerning the bargaining process of these large firms, and how the costs of defence would be split among them. But make no mistake, military defence would be adequately funded, for the simple reason that shareholders of rich companies are anything but reckless when it comes to money. Because of their size, the biggest companies couldn’t ignore the effect of their own behaviour on military preparedness.7

Furthermore, certain types of property—airports, bridges, highways, power plants, and of course, military equipment—would be far likelier targets of foreign attack, and their owners would thus constitute an even smaller group to benefit disproportionately from defence expenditures. This heterogeneity would weaken further the “spillover” character of defence services, making an efficient arrangement all the easier to achieve. Those companies that ended up paying the most might perceive the arrangement as unfair, but there would nevertheless always be an arrangement.8 The highest contributors might even advertise this fact, much as large corporations make ostentatious donations to charity in order to curry goodwill.

Thus we see that the “lumpiness” of a realistic defence industry mitigates the impact of the positive externalities (spillover effects) of military spending. Because a few critical industries will pay for a basic level of defence regardless of contributions from others, the only possible harm of free riding would be an “unfair” burden placed on certain corporations. In any event, it isn’t obvious that there would even be widespread free riding. As we shall now argue, defence services can largely be restricted to paying customers, after all.

In the earlier discussion, we treated a foreign invasion as an all-or-nothing proposition; the neighbouring State either quickly conquered the anarchist society or was effectively deterred from attacking. In reality, wars can remain in stalemate for many years. During such protracted struggles, insurance companies would certainly be able to deploy their military forces so as to limit gratuitous protection for non-clients.

Most obvious, naval escorts would only protect convoys of paying customers. All other shipping would be at the mercy of foreign fleets. Antiaircraft and missile defences would only protect those regions in which paying customers owned property. And of course, the owners of real estate on the border would always pay for its protection, lest the defence agencies pull their tanks and troops back to a more defensible position.9

Government versus private military expenditures

The above considerations show that people living in market anarchy could overcome the free rider problem and raise funds adequate for their defence. Yet there is a symmetric counterargument that is generally overlooked. It is true that coercive taxation allows governments to acquire immense military budgets. But this advantage is more than offset by the tendency of governments to squander their resources. For any meaningful comparison between government and private defence budgets, the latter needs to be multiplied severalfold, since private agencies can purchase equivalent military hardware at only a fraction of the prices paid by governments.

Everyone knows that governments are profligate with their money, and that military budgets are always a huge component of total spending. Since their operations are often conducted in foreign lands and shrouded in secrecy, a military can spend its funding with virtually no accountability. Taxpayers were shocked when an audit revealed that the U.S. Pentagon had spent $600 per toilet seat. What few people realise is that this example is typical. Because of the government’s monopoly, no one has any idea how much an F-14 Tomcat “should” cost, and so its $38 million price tag shocks no one.

This last point is important, so I want to stress that it is caused by the very nature of government, not merely the accidents of history. If a government raises its funds through taxation, then it must justify this theft by spending the money on “the public good.” Except in the most despotic regimes, the rulers can’t simply pocket the money. Consequently, not a single official in the entire government has any personal incentive to identify and eliminate wasteful spending.10

In market anarchy, on the other hand, defence services would be sold in the open market. Fierce competition among suppliers and cost consciousness among the buyers would keep the prices of toilet seats as well as fighter jets as low as possible.

Economic calculation

The first two sections demonstrated that military defence, like any other service, can be provided on the free market. To appreciate the tremendous advantage that this gives to the anarchist society, it will be useful to first explore the peacetime superiority of private industry versus government planning. To this end, we will review the critique of socialism.

The traditional opponents of socialism argued that it had insufficient incentives for the average worker; without tying pay to performance, people would shirk and output would be far lower than in a capitalist economy. Only if a new “Social-ist Man” evolved, who enjoyed working for his comrades as much as for himself, could a socialist system succeed. Although valid, this criticism misses the essence of the problem. It took Ludwig von Mises to explain,11 in a 1920 paper, the true flaw with socialism: Without market prices for the means of production, government planners cannot engage in economic calculation, and so literally have no idea if they are using society’s resources efficiently. Consequently, socialism suffers not only from a problem of incentives, but also from a problem of knowledge.12 To match the performance of a market economy, socialist planners would not need to be merely angels, committed to the commonweal—they would also need to be gods, capable of superhuman calculations.

At any time, there is only a limited supply of labor, raw materials, and capital resources that can be combined in various ways to create output goods. A primary function of an economic system is to determine which goods should be produced, in what quantities and in what manner, from these limited resources. The market economy solves this problem through the institution of private property, which implies free enterprise and freely floating prices.

The owners of labor, capital, and natural resources—the “means of production”—are free to sell their property to the highest bidder. The entrepreneurs are free to produce and sell whatever goods they wish. The ultimate test of profit and loss imposes order on this seeming chaos: If a producer consistently spends more on his inputs than he earns from selling his output, he will go bankrupt and no longer have any influence on the manner in which society’s resources are used. On the other hand, the successful producer creates value for consumers, by purchasing resources at a certain price and transforming them into goods that fetch a higher price. In the market economy, such behaviour is rewarded with profits, which allow the producer in question to have a greater say in the use of society’s scarce resources.

None of this is true in the socialist state. Even if they truly intended the happiness of their subjects, the government planners would squander the resources at their disposal. With no test of profit and loss, the planners would have no feedback and would thus be operating in the dark.13 A decision to produce more shoes and fewer shirts, or vice versa, would be largely arbitrary. Furthermore, the individuals to ultimately decide the fate of society’s resources would be selected through the political process, not through the meritocracy of the market.

Private versus government defence

The general advantages of private industry over government planning operate just as well in the field of military defence. Because the military derives its funding in a coercive manner, the link between output and consumer satisfaction is severed. Because of their monopoly, a State’s armed forces can bumble along indefinitely, with no benchmark of comparison. Even in a limited State, whose subjects enjoy a large degree of economic freedom, the armed forces constitute an island of socialism.

To get a sense of the problems involved, imagine the situation faced by Josef Stalin during World War II. As absolute dictator,

Stalin had at his disposal every resource—including human—in the Soviet Union. Stalin needed to use these resources to achieve his goals, the foremost of which (we shall assume) was the preservation and expansion of his political rule.

Some of Stalin’s choices were obvious enough. Clearly he needed to overthrow the Nazi regime. And clearly this required (before their surrender) defeat of the German armies besieging Stalingrad.

As we become more specific, however, Stalin’s choices become less clear. Yes, he should use all available steel for the production of military equipment; there is no need for new tractors at the moment. But how much of this steel should be devoted to planes? to tanks (and which models)? to mortars? to bombs? or to railroads (needed to move materiel to the front)?

Yes, all civilians—young and old, sick and healthy—should devote their lives to repelling the Huns. But precisely how many people should engage the enemy? work in tank factories? dig trenches around the city? or forage for food (to ensure survival through the winter)?

Even those tactical and strategic decisions normally made by military commanders have the same flavour. Yes, a sharpshooter such as Vasily Zaitsev should be used as a sniper, rather than as bomber pilot or factory worker. But how best to exploit Vasily? Should he be ordered to kill as many Germans as quickly as possible? Surely not, for with every shot he reveals his position. But it would also be far too conservative to have him wait months in the hopes of getting one clear shot at a general.

It is evident that Stalin (or his subordinates) must make all of these decisions and thousands more just like them largely through arbitrary guesswork. The wartime goal of expelling the enemy is no different from the peacetime problem of food production. In both cases, Stalin’s actions led to the deaths of millions of his own people. Just as a free market in agriculture would have prevented famine, a free market in defence would have prevented such monstrous casualties.

Private defence

Economic calculation allows entrepreneurs to judge whether a plan has been profitable. It allows successful ventures to expand and causes failed operations to disband. The market constantly readjusts itself to the changing data: conditions of supply, consumer demand, technical knowledge.

Now that we understand the manner in which insurance companies could objectively and quantitatively appraise military success, it is easy to see the advantages of private defence. In a situation comparable to the Battle of Stalingrad, the anarchist community would respond in the most efficient manner humanly possible. Insurance companies would determine the relative value of various military targets, and place bounties on them (for capture or elimination). Individuals left to their own spontaneous devices would try various techniques to produce this “service.” Some might buy tanks and hire men to attack the Germans head-on; others might hire sharpshooters to snipe at them from afar. Some might buy mortars and shell them. Some might hire propagandists and offer bribes to lure defectors.

Over time, only the best defence firms would survive. They would expand their operations, increasing the overall efficiency of the war effort. Because they would be operating in a system of property rights, they would need to purchase all of their resources, including labor. This would ensure that the resources were being used as effectively as possible. (For example, those areas on the front in urgent need of soldiers or ammunition would bid up their wages or prices, avoiding the arbitrariness of government troop deployment and supply.) Even if—to reduce transaction costs and maximise response time—a single firm monopolised the defence of a region, the firm could still engage in internal cost accounting and calculate the profitability of its various branches.

Perhaps more important, free competition would ensure that technological and strategic advances were rewarded and quickly implemented. In contrast, a government military must rely on a bureaucratic chain of command where innovation, especially from outsiders, is stifled. In a very real sense, a military confrontation between a statist and a free society would be a war of a few minds versus millions.

Apples and oranges

This theoretical discussion is sure to provoke the cynic to remark, “I’d like to see what your insurance companies would do if they met a Panzer division.”

But such a question misses the point. We have demonstrated that a private defence system is the most effective, not that it is invulnerable. Yes, a small society of anarchists would be unable to repel the total might of Nazi Germany. But a small society of statistswould fare even worse—and in fact, plenty of government militaries were obliterated by Hitler’s armies.

Expertise

One might wonder whether private individuals would be as knowledgeable about military affairs as government professionals. Surely Colin Powell makes a better general than Bill Gates.

This fact rests on the monopoly status of the U.S. military. If private individuals were allowed to compete with Pentagon generals, the incompetence of the latter would be manifest. The average stockholder is no expert in professional sports or foreign cuisine, yet private ownership still yields excellent baseball clubs and French restaurants. Savvy executives hire others to identify talented individuals.

Intelligence

Even if a military bound by property rights and contract would have fared well in wars of an earlier era, what of modern warfare, with its sophisticated espionage? Could there be anarchist spies?

Private defence agencies would gather research just as any company does. They would hire analysts and collect information in any way legally possible. Presumably the most powerful computers and smartest code breakers would reside in an anarchist society. Whatever (if any) the loss caused by prohibitions on wiretaps and torture, it would be more than recovered in efficiency.14

On this topic, we note that counterintelligence would probably be quite limited. Defence agencies would have (possibly) several major buyers and would be operating in an open market. Consequently, they would need to advertise the capabilities of their products. This openness, however, is a virtue: What better way to avoid military defeat than by showing potential enemies how advanced their anarchist foe would be? The defence agencies in a free society would have nothing to hide from governments.15

“Do or die”

The nature of military defence makes it less amenable to the trial and error correction mechanism of the free market. A nation can spend years in preparation for an attack, without receiving any feedback on the quality of its efforts. A sudden invasion could then wipe out the private defenders before they had a chance to adapt. This situation is different from the typical industry, in which repeated transactions day in and day out allow experimentation with various techniques and the weeding out of inefficiencies.

To meet this objection, we must remember that private defence agencies, unlike their government counterparts, need not be limited to regional clients. A multinational defence agency16 could provide, say, fighter jet services to several insurance companies in various areas of the world. Although inadequate strategies or training17 might remain hidden until a sudden disaster, at most only one of the agency’s “franchises” would be lost. The others would study the incident and learn to avoid it.

In such an environment, military strategists from all over the world would collaborate in the new art of defence. While government planners guarded their precious secrets and protocols, anarchist agencies would hire the best and brightest minds. Expert personnel would be rotated from region to region, providing training in the latest tactics and equipment.18 High-tech weapons would be stockpiled in central locations, and loaned out to anarchist societies under imminent threat of attack. This sharing—unthinkable among government militaries except in the direst circumstances—would further reduce the costs of private defence.

Nuclear weapons

The case for private defence must deal with the possibility of nuclear blackmail. In modern warfare, it would seem that only a nation that can credibly threaten to obliterate its opponents is safe from a first strike.

The anarchist society would probably not develop or even own nuclear weapons. In the first place, the term defence has been adopted consciously in this essay, and is not the euphemism as used in government propaganda. Because they would gain nothing from foreign conquest—since this would constitute theft and would be fully prosecuted within the anarchist courts—the owners of defence agencies would have no reason to spend money on weapons that were ill-suited to tactical defence.19 Precision of weaponry would be of paramount importance, since battles would be fought near or amidst a defence agency’s customers.20

Another, perhaps more significant, consideration is that defence agencies would most likely be legally prohibited from owning “weapons of mass destruction.” The anarchist legal system would operate on the same principles of voluntary contract that underlay the defence industry. Insurance companies would vouch for individuals and pledge to compensate anyone victimised by their clients. In an effort to limit their liability, insurers would require certain concessions from their customers. It is hard to imagine that an insurance agency would pledge, say, $1 million for any (innocent) person killed by Defence Firm X, when Firm X held a stockpile of hydrogen bombs.

Despite its probable lack of nuclear weapons, the anarchist society remains a viable option. Most obvious, there are statist societies that currently survive without nuclear devices. By its very nature, the anarchist society would be a completely harmless neighbour.21 No State would ever fear attack from an anarchist military, and so there would be no need to preemptively strike it (unlike the Japanese on Pearl Harbour). With no taxation, regulation, tariffs, or immigration quotas, the anarchist society would be of tremendous value to all major governments.22 They would surely act to protect it from intimidation by a rival nuclear power.23

Lessons from history

The historical record supports our theoretical discussion. Government military campaigns are characterised by gross blunders that would be comical if not so tragic.24 The only reason certain powers, such as the United States, maintain their aura of dominance is that they only fight other governments.25

So far we have restricted attention to government militaries per se. In reality, of course, a State hampers all of its operations with wartime controls, further weakening its military effectiveness. Price controls cause not only consumer vexation—through ration cards and “Meatless Tuesdays”—but also reduce output.26 Modern wars are won with material. It is no accident that the freest nations usually win their wars.

It is a statist myth that abuse of rights must be met in kind. Bertrand de Jouvenal in his classic On Power argues that the other European countries had no choice but to institute conscription in response to Napoleon.27 Yet this example only proves the dismal imagination of government planners. Surely a resilient anarchist society would have used its superior technology and industrial capacity to furnish voluntary armies28 with forts, cannons, horses, and protective armour, sufficient to repel more numerous yet ill-equipped and poorly trained conscripts.29, 30

The analogy of France fighting other European powers is inappropriate. If a government army ever attacked an anarchist society, the situation would be akin to the Vietnam War with the technological roles reversed. There would be a clash of cultures similar to the encounter between Pizarro and the Incan emperor Atahuallpa.31

The advantages of private property are as manifest in the production of defence services as with any other. There is nothing magical about government military forces; if they have fewer tanks and planes and an inferior organisation, they will lose to their anarchist opponents. A tiny country such as Taiwan can outperform communist China in the economic arena. It could defend itself just as efficiently if its residents would only abandon their faith in government police and armies, and embrace total freedom.

Notes

1. This is the standard view among anarcho-capitalist writers. See for example Linda and Morris Tannehill, The Market for Liberty (New York: Laissez-Faire Books, 1984); Murray N. Rothbard, For a New Liberty (New York: Collier, 1978); and Hans-Hermann Hoppe, “The Private Production of Defence,” Journal of Libertarian Studies 14:1 (Winter 1998–1999), esp. pp. 35–42. Even though these thinkers have outlined a feasible mechanism for private defence, insurance companies may not be the vehicle actually used in a real anarchist society: there could exist an even better market solution, yet to be imagined.

2. Suppose there are two construction firms, Shady and Reliable, and that there is one major earthquake per year. A bridge designed by Shady costs only $10 million, but in the event of an earthquake will collapse 10 percent of the time. A bridge designed by Reliable, on the other hand, costs $15 million but during an earthquake has only a 1 percent chance of collapsing. (Assume the bridges are identical in all other relevant respects.) The annual policy ensuring a Shady bridge would be priced at roughly $1 million, while the premium for a Reliable bridge would be roughly $150,000. So long as the interest rate is no higher than approximately 20 percent, the savings on insurance premiums justify purchasing the safer (yet more expensive) Reliable bridge. (For simplicity, we have ignored depreciation of aging bridges, the time it takes to rebuild a collapsed bridge, and the liability claims from killed customers.) Note that this preference for the safer design has nothing to do with altruism on the part of bridge owners, who are merely trying to minimise their costs.

3. The precise arrangement would be specified contractually. For example, an insurance policy might require that clients tune in to a certain TV or radio station during an emergency, and follow the instructions. Of course, the clients would be free to disregard these warnings and remain in their (relatively unsafe) homes, but would thereby forfeit any compensation should they suffer personal injury during the quake.

4. In mainstream economic literature, a public good is both non-excludable and non-rival in consumption. In other words, the seller of a public good can’t limit it to paying customers, and one person can consume the good without reducing its availability to another. Clean air is a prototypical public good.

5. In economist jargon, the insurance agencies would internalise the positive externalities (among their customers) of defence spending.

6. Such a scenario raises an interesting question: Why would people buy insurance from foreign conquest? What good is it to receive a check for damaged property if it too would be confiscated? One possible market response would be to diffuse ownership overlarge areas. For example, real estate agencies would own property in every major city, rather than concentrating it in one area. Investment firms would consider a financial asset’s “location” when assembling their diversified portfolios. In this way, even if a free society fell entirely to a State, the (multinational) insurance companies would still need to indemnify the absentee owners of much of the seized property.

7. Even Moocher Insurance would recognise the dangers of luring too many of these big customers from Ace, since Moocher’s premiums would be based on the accustomed level of security provided by Ace’s defence spending.

8. The typical economist who explains why the free rider problem renders private defence impractical also argues that cartels are inherently unstable because of incentives for cheating. Yet the countries of OPEC always manage to reach an agreement to limit output and distribute the gains.

9. In the extreme, we can even imagine defence agencies providing explicit intelligence to foreign enemies, specifying which neighbourhoods could be bombed without reprisal. The statist commanders—perhaps after verifying that such reports didn’t constitute a trap—would be delighted to adjust their attacks, since this would allow them to achieve their objective, i.e., carnage, with less resistance.

10. The use of audits only pushes the problem back one step. Government auditors are under far less pressure than private sector ones, since their employers—the legislators—do not desire frugality, but only the appearance of frugality to the taxpayers.

11. For a fuller discussion, see Ludwig von Mises, Socialism: An Economic and Sociological Analysis (Indianapolis: Liberty Fund, 1981).

12. Strictly speaking, the “knowledge problem” (stressed by Friedrich Hayek) is not quite the same as the more general calculation problem, but the difference lies outside the scope of this essay.

13. An example may illustrate the problem: Everyone knows that it would be incredibly “wasteful” to construct a bridge out of solid gold. Yet the vast majority of the planners’ decisions—not only of what to make but how to make it—are not so obvious.

14. The CIA, despite its sweeping powers and immense budgets, failed to predict the collapse of the Soviet Union, harboured a mole for years, caused the accidental bombing of the Chinese Embassy, and failed to prevent the 9/11 attacks (despite the discovery of similar terrorist plans as early as 1995).

15. Certain precautions would obviously be taken. For example, a factory owner wouldn’t hire an enemy diplomat for fear of sabotage. But as factory owner such a policy is perfectly within his rights; he wouldn’t need any special “wartime powers.”

16. Hoppe writes, “[A]ll insurance companies are connected through a network of contractual agreements of mutual assistance and arbitration as well as a system of international reinsurance agencies, representing a combined economic power which dwarfs that of most if not all existing governments” (p. 36).

17. Warren Earl Tilson II has proposed that private defence forces could maintain their edge by engaging in televised competition, a suggestion that would also ameliorate the funding problem. We note that (like professional sports) these contests would be fair, in sharp contrast to, say, the Pentagon’s rigged ABM tests, on which billions of dollars of pork depend.

18. It is true that government military officers engage in the same types of behaviour, but on a far smaller scale than would be the case in a free market.

19. For example, would George W. Bush be spending $1 billion per month bombing caves in Afghanistan if it were his money?

20. These considerations also show why an anarchist society need not fear a foreign government using their own (advanced) weaponry against them. Private defence firms would likely sell their wares to foreign buyers (depending on the legal status of governments in the anarchist courts), but these would be designed for defensive use. There would likely be no aircraft carriers, long-range bombers or subs capable of transoceanic voyages.

21. This of course implies that a world of anarchist societies would be free from war.

22. The cynic may believe that major governments would perceive a successful anarchist society as a threat. Although this would be true to some extent, politicians aren’t stupid; they rarely destroy lucrative trading partners, especially ones with the ability to defend themselves.

23. This argument is admittedly an odd one; it seems to acknowledge the benefit of some coercive apparatus. But note how the critique has changed. Usually the critic of private defence says that it may work in theory but not practice. Now the critic complains that private defence may work in practice but not theory.

24. General Washington’s troops at Valley Forge were absurdly ill-equipped, many lacking shoes. During the Civil War, Union generals delayed the introduction of a newer rifle for fear their men would waste ammunition. Proponents of air power were ridiculed in the first World War. British admirals stubbornly refused to convoy their ships in response to German U-boats, until their U.S. allies convinced them otherwise. Maginot’s Line proved to be a bad joke. The Polish army used cavalry against the blitzkrieging Germans, after telling its men the tanks were made of cardboard. The intelligence failures surrounding Pearl Harbour were so monumental as to lend credibility to conspiracy theorists. Silent Service captains learned in the early stages of World War II that, due to a problem in the pin mechanism, direct hits would fail to explode their torpedoes, and so they purposely aimed for glancing shots. The manufacturer managed to deny the problem for years before finally correcting it. Examples abound of military blunders.

25. The inability of a coalition of the world’s strongest governments to eliminate a single man—Osama bin Laden—after months of “resolve” underscores the limits of State power.

26. Price controls are particularly disastrous for countries enduring a blockade. Without lucrative profits, why would smugglers risk confiscation or even death?

27. Bertrand de Jouvenel, On Power: The Natural History of Its Growth (Indianapolis: Liberty Fund, 1993), p. 164.

28. The use of paid soldiers, who viewed their work as just an occupational choice, would also avoid the dangers posed by standing armies, which governments inevitably use against their own subjects.

29. Conscription, far from being a valuable tool of governments, only allows them to squander their most precious resource. On paper, the Southern states should have easily survived Northern attacks. But their commanders—trained at West Point—eschewed ungentlemanly guerrilla tactics and instead rounded up their able-bodied men and marched them into Union guns. See Jeffrey Rogers Hummel, Emancipating Slaves, Enslaving Free Men (Chicago: Open Court, 1996), pp. 178–179.

30. We also note the relative difficulty Napoleon would face in conquering an anarchist (versus statist) neighbour. With no centralised government, there is no institution with the authority to surrender to a foreign power (see Hoppe, p. 49). By creating a coercive apparatus of taxation and control over their subjects, the other European states made Napoleon’s task that much easier. In contrast, it took the British years to subdue Ireland, with its decentralised institutions.

31. In one of the most lopsided military victories in history, “Pizarro, leading a ragtag group of 168 Spanish soldiers, was in unfamiliar terrain, ignorant of the local inhabitants, completely out of touch with the nearest Spaniards… and far beyond the reach of timely reinforcements. Atahuallpa was in the middle of his own empire of millions of subjects and immediately surrounded by his army of 80,000 soldiers.… Nevertheless, Pizarro captured Atahuallpa within a few minutes after the two leaders first set eyes on each other.” See Jared Diamond, Guns, Germs, and Steel (New York: W. W. Norton & Co., 1999), p. 68.