The discussion of how the free market would provide security from aggression by criminals or an invading group has deep and venerable roots.
The Belgian-born classical liberal, Gustave de Molinari (1819-1912), respected the free market so deeply that colleagues called him "the law of supply and demand made into man." Although he was highly praised in his day, Molinari has fallen into comparative obscurity. His legacy should be retrieved because he raised a question that deserves serious consideration. Why is security a service that people believe is better provided by the state rather than by the free market?
His answer: Like every "good" necessary to man, security is best provided on a competitive basis with individuals possessing the authority to choose. In short, Molinari was a precursor to free-market anarchism. He is the first theorist to present a cohesive argument on how the free market could competitively provide defense, not merely for individuals but for areas occupied by many individuals. He proposed a free-market alternative to the service that is called "national defense." He did so in an article entitled "The Production of Security" and in his book entitled Conversations on Economic Laws and Defense of Property.
"The Production of Security" (1849) challenged a dominant social theme. The influential 17th century philosopher Thomas Hobbes had originated some of the fundamental assumptions of Molinari's day, including what became known as the "Hobbesian state of nature." Hobbes viewed the natural state between men to be a "war of all against all." He described this state thus: "there is no place for industry; because the fruit thereof is uncertain: and consequently no culture of the earth; no navigation… no commodious building… no knowledge of the face of the earth; no account of time; no arts; no letters; no society; and which is worst of all, continual fear, and danger of violent death; and the life of man, solitary, poor, nasty, brutish, and short." Only through a social contract from which the state emerged could men live harmoniously in society.
Molinari's article opens by arguing the opposite. The natural impulse of man is to combine into society for the mutual advantages that come from trade and other benefits of exchange. He wrote, "[I]mpelled by the self-interest of the individuals thus brought together, a certain division of labor is established, necessarily followed by exchanges. In brief, we see an organization emerge, by means of which man can more completely satisfy his needs than he could living in isolation." That organization is the free market, and it exists to satisfy the needs of man through a division of labor and exchange.
Molinari continued, "Among the needs of man, there is one particular type which plays an immense role in the history of humanity, namely the need for security. What is this need?" — the individual's need to protect and preserve his person and property. Molinari was not naïve. He realized that "since…Cain and Abel," there had been crimes "against the lives and property of individuals." He acknowledged that Hobbes was correct on one point: Governments are established to address the need for security. "Everywhere, men resign themselves to the most extreme sacrifices rather than do without government and hence security," Molinari agreed. Nevertheless, men were incorrect in doing so because "they misjudge their alternatives." Men would be best served by procuring their "security at the lowest price possible." [Note: "price" refers not merely to money but to all costs involved in using a service, including convenience and efficiency.]
Molinari presented three alternative means by which a good or service could be produced.
The first was through an assignment of exclusive production and sale – that is, through granting a monopoly to a privileged entity. The exclusivity is maintained by force in order to shut out competition, which raises the price "well above its value, well above the price it would have under a regime of free competition." A monarchy is an example of the monopolization of the service called "security"; it places authority into the hands of one person or one family.
The second means occurs when the monopolists are no longer as strong as the consumers to whom they dictate. Then the monopoly is replaced with production that is said to benefit society in general. In his essay "Gustave de Molinari's Legacy for Liberty," philosophy professor Roderick T. Long observes, "the market may be managed by…society as a whole; this is communism or collectivization, which in the case of security corresponds to democracy, wherein the security industry is in effect publicly owned." The authority is in the hands of the collective.
The third means of production is free-market competition. Long continues, "the market may be thrown open to free competition, or laissez-faire, a situation which in the case of security Molinari calls freedom of government, and which his successors would call anarchy." Here, the authority resides with the individuals who are called customers.
To advocate for the competitive provision of security, Molinari returned to the self-interest of the individual who wished to be safe at the lowest price possible. He argued:
It always benefits a consumer for goods and services to remain competitive because "the freedom of labor and of trade" provides the lowest price and the highest efficiency;
The interests of the consumer should "prevail over the interests of the producer."
Thus, the production of security should remain competitive.
And, yet, because security is an essential "good" for society, it was and is assumed that security must be handled by government through monopoly or collectivization, and not through the free market.
But food is also an essential good. Shelter and energy for warmth are essential goods. Are food, housing and energy best provided by the state or by the free market? In his book For A New Liberty: The Libertarian Manifesto, the Austrian economist Murray Rothbard offered a thought experiment called "The Fable of the Shoes." He wrote, "if the government had, for various reasons, been supplying shoes as a tax-financed monopoly from time immemorial" and everyone had always received shoes from the government, then whomever suggested privatizing shoe production would be dismissed. Rothbard predicts the public reaction: "You are opposed to the public, and to poor people, wearing shoes!" Critics would declare: "Who would supply shoes? Which people? How many shoe stores would be available in each city and town? . . . What material would they use?…. What would be the pricing arrangements for shoes? Wouldn't regulation of the shoe industry be needed to see to it that the product is sound? And who would supply the poor with shoes? Suppose a poor person didn't have the money to buy a pair?" Rothbard called this reaction "status quo bias."
Molinari countered the same criticism as Rothbard did about the competitive provision of security. When he asked "Could security be relegated to free competition?", the answer was a predictable "no." Why? Because those "who are concerned especially with governments, know nothing about society," Molinari concluded. "They regard it [society] as an artificial fabrication, and believe that the mission of government is to modify and remake it constantly." To permit the remaking of society, people empower the government "with an authority superior to that of the various individuals of which it is composed." Molinari rejected the empowering of the state above society, the government above the individual.
He also sketched a blueprint of the alternative. What would a free-market security service look like? To begin with, it would focus entirely upon the protection of person and property. That is, it would protect the individual's interest in safety from criminals and invaders rather than the interests of the state in preserving or extending its authority. This contrasts with a monopoly or collectivized production of security, which leads to external conflict (e.g., war with other nations over territory) and internal conflict (e.g., class warfare over domestic power).
In exchange for protecting individuals from aggression, the free-market agency would receive payment and function as a business. Customers would undoubtedly ask a series of questions of the provider, including if "any other producer of security, offering equal guarantees, is disposed to offer… this commodity on better terms…. In small districts a single entrepreneur could suffice. This entrepreneur might leave his business to his son, or sell it to another entrepreneur," he concluded. "In larger districts, one company by itself would bring together enough resources adequately to carry on this important and difficult business. If it were well managed, this company could easily last, and security would last with it." In short, Molinari envisioned a system of competing security providers that function much as insurance companies do today. He concluded, "Under a regime of liberty, the natural organization of the security industry would not be different from that of other industries."
The foregoing discussion provides nothing more than a general sense of the theory and spirit underlying the call for the competitive provision of security. As such, it is unlikely to convince anyone. But it raises important questions and places the burden of proof upon free market skeptics who argue for a monopoly or communistic production of security. The burden they shoulder resides in the question, "Of all services essential to man, why is security better provided by the state than by the free market?"
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