Privatization, Viking Style: Model or Misfortune?

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Can the experience of Icelandic Vikings eight centuries
ago teach us a lesson about the dangers of privatization? Jared
Diamond thinks so. In his article "Living
on the Moon
," published in the May 23, 2002, issue of the
New York Review of Books, Diamond portrays the history of
Iceland in the Viking period as a nightmarish vision of privatization
run amuck.

Libertarian scholars and free-market enthusiasts
have often pointed to the Icelandic Free State (930-1262) as a positive
example of a society that functioned successfully with little or
no government control. Writing in the Journal
of Legal Studies
, economist David Friedman observes that
the Free State "might almost have been invented by a mad economist
to test the lengths to which market systems could supplant government
in its most fundamental functions." As Diamond himself notes:

"Medieval Iceland had no bureaucrats,
no taxes, no police, and no army. … Of the normal functions
of governments elsewhere, some did not exist in Iceland, and
others were privatized, including fire-fighting, criminal prosecutions
and executions, and care of the poor."

But unlike those who see who see the Icelandic
system as a model to emulate, Diamond charges that the Free State's
excessively privatized character made it radically unstable, ultimately
leading to the system's violent collapse in 1262; his essay has
already been cited by The
American Prospect
as a crucial resource for those
"making the case against privatization and shrinking government."
So who's right? Does medieval Iceland illustrate privatization's
benefits, or its hazards?

Lying in the North Atlantic between Norway
and Greenland, its northern shores brushing the Arctic Circle, Iceland
is a stark and desolate landscape of basalt and frozen lava, punctuated
by volcanoes, geysers, and glaciers — eerily beautiful for tourists,
though a wearying challenge for farmers. Such a harsh natural environment
might have attracted few immigrants, were it not for a still harsher
political climate back on the mainland. Iceland's first settlers
— Norse and Celto-Norse refugees from King Harald Fairhair's attempt
in the late ninth century to impose centralized control and property
taxes on all of Norway — established what historians call the Icelandic
Free State, or Icelandic Commonwealth, around the year 930. In Diamond's
words, "they privatized government beyond Ronald Reagan’s wildest
dreams" (since Reagan dramatically increased the size and expense
of government over the course of his administration, this is quite
an understatement), "and thereby collapsed in a civil war that
cost them their independence."

This "thereby" is somewhat misleading,
however, since civil strife did not become a serious problem in
Iceland until around 1220, nearly three centuries after the
system was established — and the system's final collapse did not
come until 42 years after that. As I have written elsewhere:
"We should be cautious in labeling as a failure a political
experiment that flourished longer than the United States has even
existed." Indeed, given Diamond's criterion of instability,
the United States cannot be called stable until it survives the
year 2108. (Though one could argue that it has already failed the
test: the United States had to wait only 85 years from its founding
before plunging into a catastrophic civil war, by contrast with
Iceland's 290 years.)

How did the Icelandic Free State work? The
11th-century historian Adam von Bremen described Iceland
as having "no king but the law." The legal system's administration,
insofar as it had one, lay in the hands of a parliament of about
40 officers whom historians call, however inadequately, "chieftains."
This parliament had no budget and no employees; it met only two
weeks per year. In addition to their parliamentary role, chieftains
were empowered in their own local districts to appoint judges and
to keep the peace; this latter job was handled on an essentially
fee-for-service basis. The enforcement of judicial decisions was
largely a matter of self-help (hence Iceland's reputation as a land
of constant private feuding), but those who lacked the might to
enforce their rights could sell their court-decreed claims for compensation
to someone more powerful, usually a chieftain; hence even the poor
and friendless could not be victimized with impunity.

The basis of a chieftain's power within
the political order was the power he already possessed outside
it, in civil society. The office of chieftaincy was private property,
and could be bought or sold; hence chieftaincies tended to track
private wealth. But wealth alone was not enough. As economic historian
Birgir Solvason notes in his masterful
of the period, "just buying the chieftainship was
no guarantee of power"; the mere office by itself was "almost
worthless" unless the chieftain could "convince some free-farmers
to follow him." Chieftains did not hold authority over territorially-defined
districts, but competed for clients with other chieftains from the
same geographical area.

A chieftain was politician, lawyer, and policeman
rolled into one: he represented his clients in parliament, served
as their advocate in arbitration, and offered them armed assistance
in dispute resolution. If his customers were dissatisfied with the
quality or price of these services, they could switch to a different
chieftain without having to change their physical location; the
relation between chieftain and client could be freely terminated
by either party, so that signing up with a chieftain was rather
like signing up for insurance or long-distance phone service today;
legal jurisdictions were, in effect, "virtual" rather
than physical.

The fact that the provision of "governmental"
services was a competitive rather than a monopolistic enterprise
was arguably one of the Free State's greatest strengths; just as
in any other market, the competitive discipline imposed by the fear
of losing clients to rival service providers served as a check on
inefficiency and abuse of power. Icelandic law owed its resilience
and flexibility to this decoupling of authority from geography.

Diamond finds this competitive legal system
unprecedented and bizarre: "Everywhere else in the world that
I know of, competing chiefs ruled over mutually exclusive territories,
within which everyone else had to be that chief’s follower."
He seems unaware that non-territorial jurisdiction has been a fairly
common phenomenon throughout history; indeed, the prevalence of
non-territorial jurisdiction in medieval Europe is often credited
with explaining the "rise of the West." It is certainly
true, however, that the Free State pressed the principle of non-territorial
jurisdiction farther than most.

While non-territorial jurisdiction has its
admirers, Diamond is certainly not one of them. On the contrary,
he condemns this "weird territorial system" as a "recipe
for chaos":

"Freedmen other than chiefs could choose
their chief and switch alliances, regardless of which chief
happened to reside nearby. A chief's farm became surrounded
by a mosaic of smaller farms, some of them occupied by his own
followers, others by other chiefs' followers. The resulting
feuds fill The Sagas of Icelanders."

Yet in Jesse Byock's Viking
Age Iceland
, one of the books on which Diamond claims to
be basing his analysis, we find precisely the opposite information:
the "lack of geographically defined chieftaincies" meant
that no group could claim "exclusive or long-time control over
any one area"; as a result, there were "few territorial
u2018refuge areas'" where "feuding parties lived protected
… by a cluster of kin and friends." This "made sustained
feuding difficult," creating increased incentives for compromise.
In other words, the non-territorial nature of Iceland's legal order
served to decrease, not to increase, the violence of feud. (Diamond
also asserts that Iceland's lack of a strong central government
left it "defenseless against attacks," a charge he substantiates
by recounting an incident from 1627 — at which time Iceland was
under the "protection" of the Danish crown, and the Free
State system Diamond is criticizing had been defunct for nearly
four centuries!)

Reading the Icelandic Sagas initially gives the
impression of unremitting violence — until one notices that most
of the feuds they describe consist of low-casualty skirmishes at
long intervals. Though often referred to as "Vikings,"
Icelanders made their living for the most part through farming and
trade, and violence was sporadic; thanks to the economic incentives
provided by Iceland's legal system, conflicts were settled in court
more often than in combat. Like any good storyteller, the authors
of the Sagas simply skipped over the long boring periods when nobody
was killing anybody.

To keep Icelandic feud in perspective, one may
contrast it with continental Europe, whose princes, blessed with
"mutually exclusive territories," launched massive wars.
As Solvason points out, Icelandic society was "more peaceful
and cooperative than its contemporaries"; in England and Norway,
by contrast, "the period from about 800 to 1200 is a period
of continuous struggle; high in both violence and killings."
Byock contrasts the prolonged and violent civil strife which attended
Christianization in Norway with its relatively swift and peaceful
Icelandic analogue. Icelanders treated the conflict between pagans
and Christians as a feud, to be resolved like any other feud — by
arbitration. The arbitrator decided in favor of Christianity, and
that was that. (So imbued were the Icelanders with the norms of
conflict resolution through arbitration that they dealt with haunted
houses in the same way — trying the ghosts for trespassing, in the
confident expectation that, if found guilty, a good Icelandic ghost
would respect the verdict of the court and peacefully depart!) Even
at the Free State's worst, during the system's catastrophic breakdown
into intestine warfare in the 1200s, the body count was fairly low;
as Friedman writes:

"During more than fifty years of what
the Icelanders themselves perceived as intolerably violent civil
war, leading to the collapse of the traditional system, the
average number of people killed or executed each year appears,
on a per capita basis, to be roughly equal to the current rate
of murder and nonnegligent manslaughter in the United States."

Obviously the level of violence during the three
centuries before the civil war must have been even lower.

Diamond is best known for his 1997 book Guns,
Germs, and Steel: The Fates of Human Societies
, which argues
that history is determined primarily by geographical rather than
cultural factors; he applies a similar analysis here, maintaining
that the Icelanders' radically decentralized political system was
forced on them by Iceland's scanty supply of natural resources,
leaving them "too poor even to afford a government." (Oh,
for such poverty!) In short, the law of Iceland was not the product
of its inhabitants' own ideas and values, but was in effect selected
for them by the nature of their physical environment.

But didn't the Icelanders choose that environment
because they were hostile to centralized power back home? And doesn't
the structure of their legal system reflect that very hostility?
Diamond can hardly ignore these facts, but he minimizes their importance:

"Having emigrated to Iceland in order
to be independent of the growing power of the Norwegian king,
Icelanders wanted minimal government anyway, and that attitude
let them make a virtue of the necessity imposed by their poverty."

In other words, Icelandic cultural attitudes were
causally irrelevant to the outcome; although the system the Icelanders
ended up with was to their liking, they would have ended up with
much the same system whether they liked it or not.

Diamond's portrait of medieval Icelandic society
as crippled by extreme poverty is not borne out by the evidence.
In their supposedly hapless and half-starved condition, Icelanders
created a rich literary tradition of Eddas and Sagas, developed
a sophisticated legal code, and mounted voyages of exploration to
North America — activities that would seem to indicate a higher
degree of prosperity and leisure than Diamond suggests. Arguing
that Icelanders were in fact relatively affluent, Solvason points
to the steady improvement of economic conditions and increased production
of export goods over the course of the Free State period.

Ship ownership was far rarer in Iceland than one
might expect in an island community, particularly a "Viking"
one; Diamond surmises that this is because Iceland was poor in timber
(or quickly became so as settlers unsustainably exploited Iceland's
natural resources), so that "the original ships of the settlers
could not be replaced by new ships." He infers that Iceland,
being "almost entirely without ocean-going ships of its own,"
was left at the mercy of foreign navigators who "controlled
and exploited Iceland's trade." But as Solvason points out,
timber was regularly imported to Iceland for a variety of purposes,
and could have been used for shipbuilding if ships had been wanted;
Solvason concludes that Icelanders voluntarily chose to exploit
their comparative advantage in ranching (among Iceland's chief exports
were meat and wool) and leave shipbuilding to others, presumably
because they found this decision more profitable.

Diamond's geography-is-destiny approach to history
deserves our skepticism in any case. The world is full of bleak,
inhospitable, resource-poor regions whose inhabitants scratch out
a meager living; but how many such regions have left us a cultural
legacy comparable to medieval Iceland's? Diamond would do well to
heed philosopher R. G. Collingwood's dictum that history is ultimately
determined not by nature, but by what human beings make of nature.
By all evidence, Icelanders maintained their privatized political
system, not because they were driven by poverty and necessity to
do so (though Diamond apparently finds their system so uncongenial
that he can conceive no other reason), but quite simply because
it worked.

But if the Icelandic Free State was so successful,
why did it eventually collapse? Clearly, the explanation lies in
the growing centralization of wealth and power. As Diamond writes:

"Originally, soon after settlement, Iceland
had about 4,500 independent farms, but by the thirteenth century
80 percent of Iceland's farmland was owned by five families,
and all the other formerly independent farmers had become tenants."

These five families also managed to buy up most
of the chieftaincies, enabling them to dominate the courts and parliament.
The concentration of chieftaincies in fewer hands also meant an
end to the existence of competing chieftains within the same territory;
Iceland began to be fractured into regions, each operating as a
local monopoly or mini-state. During the years 1220-1262, the resulting
struggle for hegemony among these mini-states broke out into open
conflict, a crisis that was finally resolved only when the Icelanders,
exhausted by civil war, invited King Haakon of Norway to govern
them, thus bringing the Free State period to a close.

To Diamond, this final decision illustrates the
utter bankruptcy of the Icelandic system: "I cannot think of
another historical case of an independent country that became so
desperate that it turned itself over to another country." Perhaps
he should have tried harder; he might have remembered England in
1688, offering the crown to William of Orange after deposing the
Stuarts — or, harking farther back, the many small states who responded
to civil strife by calling in a Roman garrison, thus submitting
de facto to Roman authority. Moreover, the very desperation
of the move indicates how unaccustomed the Icelanders were to levels
of violence that had long been commonplace on the mainland. In any
case, the Icelanders presumably saw the Covenant of 1262-64, not
as a surrender of national independence, but simply as yet another
case of signing up with a new chieftain because their previous chieftains
had proven unsatisfactory. This new chieftain, the Norwegian king,
was farther away, and so perhaps less dangerous; certainly he was
wealthier than any Icelandic chieftain, and so (they imagined) less
tax-hungry. What they failed to recognize was the incentive implications
of switching from a competitive system to a monopolistic one — though
admittedly, their own system had lost much of its competitive character
already. (War is not a form of competition; it is what arises when
competition breaks down.)

The process of competitive chieftaincies turning
into monopolistic mini-states is obviously a move toward less
privatization, not more; and it was precisely when Iceland had become
less privatized and more like mainland Europe — a collection of
principalities vying for supremacy — that it collapsed into the
kind of large-scale warfare that had raged across the rest of Europe
for centuries. It seems rather unfair, then, to blame this catastrophe
on privatization. Still, why didn't Iceland's privatized system
of law prevent the increasing concentration of wealth and power
in the first place? Was this failure symptomatic of an inherent
flaw in the Icelandic system?

Typically, Diamond offers an environmental
explanation for the increasing concentration of wealth: Iceland's
harsh climate. "In cold years the poorer farms culled or lost
their livestock in the winter because of insufficient hay,"
and so were "forced to become debtors who were dependent on
others for survival." The cogency of this explanation is doubtful.
Wealthier farmers had more hay, but they presumably also had more
livestock; hence they most likely did not have more hay per head
of livestock. Since wealth was held predominantly in land and
livestock, not in currency, it's unclear why hard winters should
be expected to have a less severe impact on wealthy farmers than
on poor ones.

A more plausible explanation for the Free State's
decline points to the introduction of the tithe in 1096. Made possible
by Iceland's conversion to Christianity a century earlier, the tithe
— to pay church officials and maintain church buildings — was Iceland's
first real tax. (Previous "taxes" generally turn out on
closer inspection to be voluntary exchanges of fees for services.)
Assessed at 1% of the payer's property, it was also Iceland's first
graduated tax (earlier fees were one-size-fits-all), and
so took in much more revenue. Most importantly, the tithe lacked
a competitive element. Recall the non-territorial character of a
chieftain's jurisdiction: a chieftain's temptations to self-aggrandizement
were kept in check by the knowledge that if he acquired delusions
of grandeur or charged too high a price for his services, his clients
could abandon him for a rival. But the tithe was territorial;
all those who lived in the vicinity of a particular church building
had to pay for its upkeep, and were not at liberty to transfer
their support elsewhere. The catch is that the portion of tithe
revenue allocated to maintaining church buildings went not to the
official church hierarchy but to the wealthy private owners (usually
chieftains) of stadhir, "churchsteads," i.e., plots
of land on which churches had been built. The tithe was a property
tax; but chieftaincies, though marketable commodities, were exempt
— as were the churchsteads themselves, predominantly owned by chieftains.
(The parliament that enacted the tithe law was of course composed
entirely of chieftains.)

The tithe thus did more than just increase
the income of the chieftains; it decoupled that income from accountability.
Economic inequalities per se are not a serious threat to
liberty so long as they operate in a genuine market context, where
the way to gain and maintain wealth is to please one's customers;
before the introduction of the tithe, a chieftain who proved too
power-hungry would alienate his customers and so suffer financial
discipline. But chieftains who owned churchsteads now had a captive
market, and so were freed from all competitive restraints on their
accumulation of wealth and power. Through buying off or intimidating
less wealthy chieftains, the top families were able to gain control
of multiple chieftaincies. This gave them a lock on the parliament,
enabling them to pass still further taxes; it also decreased competition
among chieftains, allowing them to charge monopoly prices and drive
their clients into a serf-like state of debt and dependence.

The Icelandic system did fall through an inherent
flaw, then, but not the one Diamond imagines; the Free State failed,
not through having too much privatization, but through having too
little. The tithe, and particularly the portion allotted to churchstead
maintenance, represented a monopolistic, non-competitive element
in the system. The introduction of the tithe was in turn made possible
by yet another non-competitive element: the establishment of an
official state church which everyone was legally bound to support.
Finally, buying up chieftaincies would have availed little if there
had been free entry into the chieftaincy profession; instead, the
number of chieftains was set by law, and the creation of new chieftaincies
could be approved only by parliament — i.e., by the existing
chieftains, who were naturally less than eager to encourage
competitors. It is precisely those respects in which the Free State
was least privatized and decentralized that led to its downfall
— while its more privatized aspects delayed that downfall for three

Diamond pities the medieval Icelanders. We
might do better to emulate them.

Further Reading

Bruce Benson. The
Enterprise of Law: Justice Without the State
. Pacific
Research Institute, San Francisco, 1990.

Tom W. Bell. "Polycentric
." Humane Studies Review, Vol. 7, No. 1, 1991/92.

Jesse L. Byock. Feud
in the Icelandic Saga
. University of California Press, Berkeley,

—–. Medieval
Iceland: Society, Sagas, and Power
. University of California
Press, Berkeley, 1988.

—–. Viking
Age Iceland
. Penguin, London, 2001.

David Friedman. "Private
Creation and Enforcement of Law: A Historical Case
." Journal
of Legal Studies 8, 1979.

—–. The
Machinery of Freedom: Guide to a Radical Capitalism
. Second
Edition. Open Court, La Salle, 1989. Chapter 44.

—–. "Viking Iceland: Anarchy that Worked,"
Liberty 2, no. 6 (July 1989), pp. 37-40.

Albert Loan. "Institutional
Bases of the Spontaneous Order: Surety and Assurance
Humane Studies Review, Vol. 7, No. 2, 1992.

Roderick T. Long. "The
Decline and Fall of Private Law in Iceland
." Formulations
1, no. 3 (Spring 1994).

William I. Miller. Bloodtaking
and Peacemaking: Feud, Law, and Society in Saga Iceland
University of Chicago Press, Chicago, 1990.

Birgir T. Runolfsson Solvason. Ordered
Anarchy, State, and Rent-Seeking: The Icelandic Commonwealth, 930-1264
Ph.D. Dissertation in Economics, George Mason University, 1991.

—–. "Ordered
Anarchy: Evolution of the Decentralized Legal Order in the Icelandic
," Icelandic Economic Papers 17 (1992).

—–. 1993. "Institutional Evolution in the
Icelandic Commonwealth." Constitutional Political Economy
4, no. 1, pp. 97-125.

6, 2002

T. Long [send
him mail
] is Assistant Professor of Philosophy at Auburn
, President of the Alabama
Philosophical Society
, Editor of the Libertarian Nation
Foundation periodical Formulations,
and an Adjunct Scholar of the Ludwig
von Mises Institute

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