the Twentieth Century proved anything, it is that the single greatest
danger to human life are the thugs of the centralized political
State, who extinguished more than 170 million souls during the bloodiest
rampage in recorded history. By any rational standard, modern States
are the last and greatest remaining predators — and that the danger
has not abated with the demise of communism and fascism. All Western
democracies currently face vast and accelerating escalations of
State power and centralized control over economic and civic life.
In almost all Western democracies, the State chooses:
children go to school, and how they will be educated
- the interest
rate citizens can borrow at
- the value
- how employees
can be hired and fired
- how more
than 50% of their citizens' time and money are disposed of
- who a
citizen's doctor is
- what kinds
of medical procedures can be received — and when
- when to
go to war
- who can
live in the country
to touch on a few.
of these amazing intrusions into personal liberty have occurred
over the past 90 years, since the introduction of the income tax.
They have been accepted by a population helpless to challenge the
endless expansions of State power — and yet, even though most citizens
have received endless pro-State propaganda in government schools,
a growing rebellion is brewing. State predations are now so intrusive
that they have effectively arrested the forward momentum of society,
which now hangs before a fall. Children are poorly educated, young
people are unable to get ahead, couples with children fall ever-further
into debt, and the elderly are finding State medical systems collapsing
under the weight of their growing needs — and State debts continue
these early years of the twenty-first century are the end of an
era, a collapse of mythology comparable to the fall of fascism,
communism, monarchy, or political Christianity. The idea that the
State is capable of solving social problems is now viewed with great
skepticism — which foretells a coming change. As soon as skepticism
is applied to the State, the State falls, since it fails at everything
except increasing its power, and so can only survive on propaganda,
which relies on unquestioning faith.
while most people are comfortable with the idea of reducing the
size and power of the State, they become distinctly uncomfortable
with the idea of getting rid of it completely. To use a medical
metaphor, if the State is a cancer, they prefer medicating it into
an unstable remission, rather than eliminating it completely.
can never work. A central lesson of history is that States are parasites
which always expand until they destroy their host population. Because
the State uses violence to achieve its ends — and there is no rational
end to the expansion of violence — States grow until they destroy
civilized interaction through the corruption of money, contracts,
honesty, family, and self-reliance. As such, the cancerous metaphor
is not misplaced. People who believe that the State can somehow
be contained have not accepted the fact that no State in history
has ever been contained.
the rare reductions are merely temporary. The United States was
founded on the principle of limited government; it took little more
than a century for the State to break the bonds of the Constitution,
implement the income tax, take control of the money supply and the
educational system, and begin its catastrophic expansion. There
is no example in history of a State being permanently reduced in
size. All that happens during a tax or civil revolt is that the
State retrenches, figures out what it did wrong, and plans its expansion
again. Or provokes a war, which silences all but fringe dissenters.
these well-known historical facts, why do still people believe that
such a deadly predator can be tamed? Surely it can only be because
they consider a slow strangulation in the grip of an expanding State
somehow better than the quick death of a society bereft of a State.
then, do most people believe that a society will crumble without
a coercive and monopolistic social agency at its core? There are
a number of answers to this question, but generally they tend to
revolve around three central points:
fact that people still cling to the belief that the State is required
to resolve disputes is amazing, since modern courts are out of the
reach of all but the most wealthy and patient, and are primarily
used to shield the powerful from competition or criticism. In this
writer's experience, to take a dispute with a stockbroker to the
court system would have cost more than a quarter of a million dollars
and taken from five to ten years — however, a private mediator settled
the matter within a few months for very little money. In the realm
of marital dissolution, private mediators are commonplace. Unions
use grievance processes, and a plethora of other specialists in
dispute resolution have sprung up to fill in the void left by a
ridiculously lengthy, expensive and incompetent State court system.
the belief that the State is required for dispute resolution is
obviously false, since the court apparatus is unavailable to the
vast majority of the population, who resolve their disputes either
privately or through agreed-upon mediators.
can the free market deal with the problem of dispute resolution?
Outside the realm of organized crime, very few people are comfortable
with armed confrontations, and so generally prefer to delegate that
task to others. Let's assume that people's need for such representatives
produces Dispute Resolution Organizations (DROs), which promise
to resolve disputes on their behalf.
if Stan is hired by Bob, they both sign a document specifying which
DRO they both accept as an authority in dispute resolution. If they
disagree about something, and are unable to resolve it between themselves,
they submit their case to the DRO, and agree to abide by that DRO's
far so good. However, what if Stan decides he doesn't want to abide
by the DRO's decision? Well, several options arise.
of all, when Stan signed the DRO agreement, it is likely that he
would have agreed to property confiscation if he did not abide by
the DRO's decision. Thus the DRO would be entirely within its right
to go and remove property from Stan — by force if necessary — to
pay for his side of the dispute.
is at this point that people generally throw up their arms and dismiss
the idea of DROs by claiming that society would descend into civil
war within a few days.
of course, realizes that civil war is a rather bad situation, and
so it seems likely that the DROs would consider alternatives to
other options could be pursued? To take a current example, small
debts which are not worth pursuing legally are still regularly paid
off — and why? Because a group of companies produce credit
ratings on individuals, and the inconvenience of a lowered
credit rating is usually greater than the inconvenience of paying
off a small debt. Thus, in the absence of any recourse to force,
small debts are usually settled. This is one example of how desired
behaviour can be elicited without pulling out a gun or kicking in
for a moment the infinite complexity of modern economic life. Most
individuals bind themselves to dozens of contracts, from car loans
and mortgages to cell phone contracts, gym membership, condo agreements
and so on. To flourish in a free market, a man must honour his contracts.
A reputation for honest dealing is the foundation of a successful
economic life. Now, few DROs will want to represent a man who regularly
breaks contracts, or associates with difficult and litigious people.
(For instance, this writer once refrained from entering into a business
partnership because the potential partner revealed that he had sued
two previous partners.)
if Stan refuses to abide by his DRO's ruling, the DRO has to barely
lift a finger to punish him. All the DRO has to do is report Stan's
non-compliance to the local contract-rating company, who
will enter his name into a database of contract violators. Stan's
DRO will also probably drop him, or raise his rates considerably.
so, from an economic standpoint, Stan has just shot himself in the
foot. He is now universally known as a man who rejects legitimate
DRO rulings that he agreed to accept in advance. What happens when
he goes for his next job? What if he decides to eschew employment
and start his own company, what happens when he applies for his
first lease? Or tries to hire his first employee? Or rent a car,
or buy an airline ticket? Or enter into a contract with his first
customer? No, in almost every situation, Stan would be far better
off to abide by the decision of the DRO. Whatever he has to pay,
it is far cheaper than facing the barriers of existing without access
to a DRO, or with a record of rejecting a legitimate ruling.
let's push the theory to the max, to see if it holds. To examine
a worst-case scenario, imagine that Stan's employer is an evil man
who bribes the DRO to rule in his favour, and the DRO imposes an
unconscionable fine — say, one million dollars — on Stan.
of all, this is such an obvious problem that DROs, to get any business
at all, would have to deal with this danger up front. An appeal
process to a different DRO would have to be part of the contract.
DROs would also rigorously vet their own employees for any unexplained
income. And, of course, any DRO mediator who corrupted the process
would receive perhaps the lowest contract rating on the planet,
lose his job, and be liable for damages. He would lose everything,
and be an economic pariah.
to go to the extreme, perhaps the worst has occurred and Stan has
been unjustly fined a million dollars due to DRO corruption. Well,
he has three alternatives. He can choose not to pay the fine, drop
off the DRO map, and work for cash without contracts. Become part
of the grey market, in other words. A perfectly respectable choice,
if he has been treated unjustly.
if Stan is an intelligent and even vaguely entrepreneurial man,
he will see the corruption of the DRO as a prime opportunity to
start his own, competing DRO, and will write into its base contract
clauses to ensure that what happened to him will never happen to
anyone who signs on with his new DRO.
third option is to appeal to the contract rating agency.
Contract rating agencies need to be as accurate as possible, since
they are attempting to assess real risk. If they believe that the
DRO ruled unjustly against Stan, they will lower that DRO's
contract rating and restore Stan's.
it is inconceivable that violence would be required to enforce all
but the most extreme contract violations, since all parties gain
the most long-term value by acting honestly. This resolves the problem
of instant descent into civil war.
other problems exist, however, which must be resolved before the
DRO theory starts to becomes truly tenable.
first is the challenge of reciprocity, or geography. If Bob has
a contract with Jeff, and Jeff moves to a new location not covered
by their mutual DRO, what happens? Again, this is such an obvious
problem that it would be solved by any competent DRO. People who
travel prefer cell phones with the greatest geographical coverage,
and so cell phone companies have developed reciprocal agreements
for charging competitors. Just as a person's credit rating is available
anywhere in the world, so their contract rating will also
be available, and so there will be no place to hide from a broken
contract save by going u2018off the grid' completely, which would be
second problem is the fear that a particular DRO will grow in size
and stature to the point where it takes on all the features and
properties of a new State.
is a superstitious fear, because there is no historical example
of a private company replacing a political State. While it is true
that companies regularly use State coercion to enforce trading restrictions,
high tariffs, cartels and other mercantilist tricks, surely this
reinforces the danger of the State, not the inevitability
of companies growing into States. All States destroy societies.
No company has ever destroyed a society without the aid of the State.
Thus the fear that a private company can somehow grow into a State
is utterly unfounded in fact, experience, logic and history.
society becomes frightened of a particular DRO, then it can simply
stop doing business with it, which will cause it to collapse. If
that DRO, as it collapses, somehow transforms itself from a group
of secretaries, statisticians, accountants and contract lawyers
into a ruthless domestic militia and successfully takes over society
— and how unlikely is that! — then such a State will then be imposed
on the general population. However, there are two problems even
with this most unlikely scare scenario. First of all, if any
DRO can take over society and impose itself as a new State, why
only a DRO? Why not the Rotary Club? Why not a union? Why
not the Mafia? The YMCA? The SPCA? Is society to then ban all groups
with more than a hundred members? Clearly that is not a feasible
solution, and so society must live with the risk of a brutal coup
by ninja accountants as much as from any other group.
in the final analysis, if society is so terrified of a single group
seizing a monopoly of political power, what does that say about
the existing States? They have a monopoly of political power.
If a DRO should never achieve this kind of control, why should existing
States continue to wield theirs?
sewage, water and electricity and so on are also cited as reasons
why a State must exist. How roads could be privately paid for remains
such an impenetrable mystery that most people are willing to support
the State — and so ensure the eventual and utter destruction of
civil society — rather than cede that this problem just might
solvable. There are many ways to pay for roads, such as electronic
or cash tolls, GPS charges, roads maintained by the businesses they
lead to, communal organizations and so on. And if none of those
work? Why, then personal flying machines will hit the market!
problem that a water company might build plumbing to a community,
and then charge exorbitant fees for supplying it, is equally easy
to counter. A truck could deliver bottled water, or the community
could invest in a water tower, a competing company could build alternate
pipes and so on. None of these problems touch the central rationale
for a State. They are ex post facto justifications made to
avoid the need for critical examination or, heaven forbid, political
action. The argument that voluntary free-market monopolies are bad
— and that the only way to combat them is to impose compulsory monopolies
— is obviously foolish. If voluntary monopolies are bad, then how
can coercive monopolies be better?
to countless examples of free market solutions to the problem of
u2018carrier costs', this argument no longer holds the kind of water
it used to, so it must be elsewhere that people must turn to justify
the continued existence of the State.
is perhaps the greatest problem faced by free-market theorists.
It's worth spending a little time on outlining the worst possible
scenario, and see how a voluntary system could solve it. However,
it's important to first dispel the notion that the State currently
deals effectively with pollution. Firstly, the most polluted resources
on the planet are State-owned, because State personnel do not personally
profit from retaining the value of State property (witness the destruction
of the Canadian cod industry through blatant vote-buying). Secondly,
the distribution of mineral, lumber and drilling rights is directly
skewed towards bribery and corruption, because States rarely sell
the land, but rather just the resource rights. A lumber company
cannot buy woodlands from the State, just the right to harvest trees.
Thus the State gets a renewable source of income, and can further
coerce lumber companies by enforcing re-seeding. This, of course,
tends to promote bribery, corruption and the creation of u2018fly-by-night'
lumber companies which strip the land bare, but vanish when it comes
time to re-seed. Auctioning State land to a private market easily
solves this problem, because a company which re-seeded would reap
the greatest long-term profits from woodland, and so would be able
to bid the most for the land.
it should be remembered that, in the realm of air pollution, governments
created the problem in the first place. In 19th century
England, when industrial smokestacks began belching fumes into the
orchards of apple farmers, the farmers took the factory-owners to
court, citing the common-law tradition of restitution for property
damage. Naturally, the capitalists had gotten to the State courts
first, and had more money to bribe with, employed more voting workers,
and contributed more tax revenue than the farmers — and so the farmers'
cases were thrown out of court. The judge argued that the u2018common
good' of the factories took precedence over the u2018private need' of
the farmers. The free market did not fail to solve the problem of
air pollution — it was forcibly prevented from doing so through
State, then, is no friend of the environment — but how would the
free market handle it? One egregious example often cited is a group
of houses downwind from a new factory which works day and night
to coat them in soot.
a man buys a new house, isn't it important to him to ensure that
it won't be subjected with someone else's pollution? People's desire
for a clean and safe environment is so strong that it's a clear
invitation for enterprising capitalists to sweat bullets figuring
out how to provide it.
since we have already talked about DROs and their role in a free
market, the problem of air pollution can be solved quite easily.
the aforementioned group of homeowners is afraid of pollution, the
first thing they will do is buy pollution insurance, which
is a natural response to a situation where costs cannot be predicted
but consequences are dire. Let's say that a homeowner named Achmed
buys pollution insurance which pays him two million dollars if the
air around or in his house becomes polluted in some predefined manner.
In other words, as long as Achmed's air remains clean, the insurance
company makes money.
day, a plot of land upwind of Achmed's house comes up for sale.
Naturally, his insurance company would be very interested in this,
and would monitor the sale. If the purchaser is some private school,
all is well (assuming Achmed has not bought an excess of noise pollution
insurance!). If, however, the insurance company discovers that Sally's
House of Polluting Paint Production is interested in purchasing
the plot of land, then it will likely spring into action, taking
one of the following actions:
the land itself, then selling it to a non-polluting buyer;
assurances from Sally that her company will not pollute;
Sally to enter into a non-polluting contract.
however, someone at the insurance company is asleep at the wheel,
and Sally buys the land and puts up her polluting factory, what
then the insurance company is on the hook for $2M to Achmed (assuming
for the moment that only Achmed bought pollution insurance). Thus,
it can afford to pay Sally up to $2M to reduce her pollution and
still be cash-positive. This payment could take many forms,
from the installation of pollution-control equipment to a buy-out
to a subsidy for under-production and so on.
the $2M is not enough to solve the problem, then the insurance company
pays Achmed the $2M and he goes and buys a new house in an unpolluted
neighbourhood. However, this scenario is highly unlikely, since
the insurance company would be unlikely to insure only one single
person in a neighbourhood against air pollution — and a single person
probably could not afford it!
that is the view from Achmed's air-pollution insurance company.
What about the view from Sally's House of Polluting Paint Production?
She, also, must be covered by a DRO in order to buy land, borrow
money and hire employees. How does that DRO view her tendency to
brings damage claims against Sally, because pollution is by definition
damage to persons or property. Thus Sally's DRO would take a dim
view of her polluting activities, since it would be on the hook
for any property damage her factory causes. In fact, it would be
most unlikely that Sally's DRO would insure her against damages
unless she were able to prove that she would be able to operate
her factory without harming the property of those around
her. And without access to a DRO, of course, she would be hard-pressed
to start her factory, borrow money, hire employees etc.
important to remember that DROs, much like cell phone companies
and Internet providers, only prosper if they cooperate. Sally's
DRO only makes money if Sally does not pollute. Achmed's insurer
also only makes money if Sally does not pollute. Thus the two companies
share a common goal, which fosters cooperation.
even if Achmed is not insured against air pollution, he can use
his and/or Sally's DRO to gain restitution for the damage her pollution
is causing to his property. Both Sally and Achmed's DROs would have
reciprocity agreements, since Achmed wants to be protected against
Sally's actions, and Sally wants to be protected against Achmed's
actions. Because of this desire for mutual protection, they would
choose DROs which had the widest reciprocity agreements.
in a truly free market, there are many levels and agencies actively
working against pollution. Achmed's insurer will be actively scanning
the surroundings looking for polluters it can forestall. Sally will
be unable to build her paint factory without proving that she will
not pollute. Mutual or independent DROs will resolve any disputes
regarding property damage caused by Sally's pollution.
are other benefits as well, which are almost unsolvable in the current
system. Imagine that Sally's smokestacks are so high that her air
pollution sails over Achmed's house and lands on Reginald's house,
a hundred miles away. Reginald then complains to his DRO that his
property is being damaged. His DRO will examine the air contents
and wind currents, then trace the pollution back to its source and
resolve the dispute with Sally's DRO. If the air pollution is particularly
complicated, then Reginald's DRO will place non-volatile compounds
into Sally's smokestacks and follow them to where they land. This
can be used in a situation where a number of different factories
may be contributing pollutants.
problem of inter-country air pollution may seem to be a sticky one,
but it's easily solvable. Obviously, a Canadian living along the
Canada/US border, for instance, will not choose a DRO which refuses
to cover air pollution emanating from the US. Thus the DRO will
have to have reciprocity agreements with the DROs across the border.
If the US DROs refuse to have reciprocity agreements with the Canadian
DROs — inconceivable, since the pollution can go both ways — then
the Canadian DRO will simply start a US branch and compete.
difference is that international DROs actually profit from
cooperation, in a way that governments do not. For instance, a State
government on the Canada/US border has little motivation to impose
pollution costs on local factories, as long as the pollution generally
goes north. For DROs, quite the opposite would be true.
one other advantage to DRO's can be termed the u2018Scrabble-Challenge
Benefit'. In Scrabble, an accuser loses his turn if he challenges
another player's word and the challenge fails. Given the costs of
resolving disputes, DROs would be very careful to ensure that those
bringing false accusations would be punished through their own premiums,
their contract ratings and by also assuming the entire cost
of the dispute. This would greatly reduce the number of frivolous
lawsuits, to the great benefit of all.
idea that society can only survive in the absence of a centralized
State is the greatest lesson that the grisly years of the Twentieth
Century can teach us. Our choice is not between the free market
and the State, but between life and death. Whatever the risks involved
in dissolving the central State, they are far less than the certain
destruction which will result from its inevitable escalation. Like
a cancer patient facing certain demise, we must open our minds reach
for whatever medicine shows the most promise, and not wait until
it is too late.