Order in a Free Market with Private Police and Private National Defense

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C Le Master Posted: Sun, Feb 7 2010 12:12 AM

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In reading Rothbard's For a New Liberty, I was left with one question that a socialist friend of mine proposed. Rothbard explains how feuding police would not cause anarchy, but it fails to explain this situation. Say a company like Microsoft gets so much money that it is more profitable than private police. Then, Microsoft could become power hungry and look to take over a world that is free and up for their taking. In this case, they would have the most money and could buy the most weapons and labor of soldiers to defeat the police in the free market. If a free market allows a company to grow with no regulation and has no government to protect people and keep the company from getting things to take over with all of their money, then how could they be stopped from taking over the police or country and infringing on private property and people's rights, and establishing leadership there? I myself am an Austrian thinker, I would just like a good explanation, and would greatly appreciate all help. Thank you very much everyone.

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Andrew Cain replied on Sun, Feb 7 2010 12:26 AM

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C Le Master:

Then, Microsoft could become power hungry and look to take over a world that is free and up for their taking. In this case, they would have the most money and could buy the most weapons and labor of soldiers to defeat the police in the free market. If a free market allows a company to grow with no regulation and has no government to protect people and keep the company from getting things to take over with all of their money, then how could they be stopped from taking over the police or country and infringing on private property and people's rights, and establishing leadership there? I myself am an Austrian thinker, I would just like a good explanation, and would greatly appreciate all help. Thank you very much everyone.

So microsoft would become so centralized and so expansive that it defies the competition of the free market and establishes itself as a monopoly or something very close to it all the while bankrupting other providers and somehow through all of this people will suddenly accept this rule and not fight back?

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Josh replied on Sun, Feb 7 2010 12:29 AM

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C Le Master:

If a free market allows a company to grow with no regulation and has no government to protect people and keep the company from getting things to take over with all of their money, then how could they be stopped from taking over the police or country and infringing on private property and people's rights, and establishing leadership there?

There would be regulation and it would come from the people who are, or aren't, paying for Microsoft's product.

Do you really think that people would continue to support a company monetarily when the company is going to take over the world?

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TelfordUS replied on Sun, Feb 7 2010 1:18 AM

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That is most definitely a realistic possibility. All it takes is an aggressive motivation and stronger action than the competitor. 

This is an unstable calculation because a sovereign body can grow in power exponentially, given the right situations. If you get a ray gun from the random box in Nazi Zombies, you're bound to rack up more points ($) than you're "teammate" who got a bolt-action rifle. By level 11, if the situation remains with you as a more efficient killer, you have the power to let your buddy get wiped out by a mob of zombs. Then you can make him repair all the windows, or else. You're now the proud owner of an aggressive state. Imagine if everyone who played Nazi Zombies sought to achieve that; it would become too hostile, and you probably wouldn't last for too long.

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DD5 replied on Sun, Feb 7 2010 9:48 AM

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The argument is flawed in many respects.

1.  Irony:  Does your socialist friend realize that his concern is basically that Microsoft will turn into his government?  You should point that out to him immediately.

2. Absurdity: By his own line of reasoning, Microsoft can buy anything it wants.  It can buy all the bakeries and have a monopoly on bread and then starve everybody, or perhaps it can buy all of the shoes and have a monopoly on shoes.  Then we'll all be at the mercy of Microsoft begging for bread and shoes. 

3.  Incentive: War is costly.  Unlike a government, which can externalize the costs of its action to all of its subjects, a private entity would have to bear the full cost at its own expense.  So the incentive for such costly aggression is very much working against you.

4.  Market Reality:  Our starting point is a successful enterprise such as Microsoft.  As successful as it may be, as long as consumers have other wants in their lives except for MS software (do we still have to eat?), it's capital value is only going to be a fraction of the total capital value in the market.

 5.  Financial Reality: The funds to buy all of these weapons and soldiers will just not be there.  Keep this in mind: the capital value of the firm is a function of its money making potential.  So now, where would it get the funds?  

    A.  Profits.  Profits are always temporary and are never secured.  As successful as we can imagine Microsoft to be, the total profits is likely to be a small fraction of the total capital value of the firm.  Any annual profit will simply not be anywhere near sufficient to fulfill this fantasy of initiating and conducting a war.  it's simply absurd.  If the firm was to plan a gradual buildup of arms, it must divert its profits/savings away from those same productive investments that have made the firm profitable in the first place.  The firm itself would be seeding its financial destruction making the whole endeavor impossible.  The diminishing profits and even before that, the expected diminishing profits as a result of the firm's non-productive investments, e.g., arms buildup, will make the firm's capital value tank.  

  B.  Capital Value -  What if the owners collude and sell their shares to raise the funds.  In this case, we are no longer talking about Microsoft the firm taking over the world, but a bunch of idiots who have sold their shares just so they can consume it.  And on what?  weapons? armed men?  How much fire power can they buy and how long can they sustain this army for, with nothing but a fixed amount of cash?  Remember, we are no longer talking about Microsoft but a bunch of individuals who have raised some cash in order to go on a criminal endeavor, which according to your friend is likely to conquer the world.

Your friend fails to realize the difference between political power and economic power.  The first is gained by the initiation of force or threat of force and the latter is gained only by voluntary consent.  To transition from the latter to the former is not so easy as it seems.  In fact, without the public supporting such an institution, it is hard to see how it is even possible.

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C Le Master replied on Sun, Feb 7 2010 3:29 PM

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You all have interesting and valid approaches to this. DD5, I think your explanation was great, but take into account TelforUs's argument. If they had more power than any other individual private company, they could buy the arms and hire employees to fight with no one to stop them. With more man power and weapons, they could quickly take over and under their rule, and could they not prevent any uprisings if they have control. I imagine today the government could do the same thing, so how would people rise against Microsoft with the most money, and how would people in today's society similarly rise against a corrupt government.

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DD5 replied on Mon, Feb 8 2010 8:56 AM

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C Le Master:

but take into account TelforUs's argument.

TelforUs's argument ignores some fundamental economic realities and it is no more sound then the original argument.  

It ignores the difference between economic power and political power, and all of the concerns he (and your friend) raises are applicable to the latter but not the former.  Sure, there can be, in theory,a transition from the former to the latter, but how is this a result of a free market?  It is precisely the abandonment of the free market that would allow for such a transition to take place.

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TelfordUS replied on Mon, Feb 8 2010 12:16 PM

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DD5:

C Le Master:

but take into account TelforUs's argument.

TelforUs's argument ignores some fundamental economic realities and it is no more sound then the original argument.  

It ignores the difference between economic power and political power, and all of the concerns he (and your friend) raises are applicable to the latter but not the former.  Sure, there can be, in theory,a transition from the former to the latter, but how is this a result of a free market?  It is precisely the abandonment of the free market that would allow for such a transition to take place.

Perhaps my video-game reference wasn't the best for this argument :P

However, the transition from from economic power to political power can still take place. Yes, it would abandon free market principles of persuasion instead of aggression, but with enough tangible wealth and means of production, it is definitely possible. If you own a several mines, processing plants, etc., and enough force to protect these things from all other forces (including the state), then you have the foundation for an aggressive institution. All you need is to convince people to fight for you as troops or spies, and your farther down the path to creating your own state.

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DD5 replied on Mon, Feb 8 2010 1:12 PM

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TelfordUS:

but with enough tangible wealth and means of production, it is definitely possible.

Explain to me where my argument above is flawed.

TelfordUS:

All you need is to convince people to fight for you as troops or spies, and your farther down the path to creating your own state.

And I say that this is impossible without public support, because the resources that you assume to be there are not really there.

Those resources are there only because the public has previously approved of the corporation's activity.  The minute the corporation embarks on activity that the public no longer approves , it's capital value will diminish, thus, ending the Marxist fantasy short before it even got started.

It can't happen without public support.  But if there is public support, then this isn't a free market problem.  It's the same problem we have now; the public rejecting markets and embracing authoritarian control.

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C Le Master replied on Mon, Feb 8 2010 3:30 PM

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Wow DD5, you did a great job explaining. You took a lot of time to help explain this and helped make it clear to me. I am really grateful for your help, and everyone else's as well, including TelforUs for his opposing thought. Thanks again alot everyone.

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The Late Andrew Ryan replied on Mon, Feb 8 2010 4:30 PM

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C Le Master:

You all have interesting and valid approaches to this. DD5, I think your explanation was great, but take into account TelforUs's argument. If they had more power than any other individual private company, they could buy the arms and hire employees to fight with no one to stop them. With more man power and weapons, they could quickly take over and under their rule, and could they not prevent any uprisings if they have control. I imagine today the government could do the same thing, so how would people rise against Microsoft with the most money, and how would people in today's society similarly rise against a corrupt government.

1. The law of political demand. This is a worry that you have right now, correct? So why wouldn't you form, join, or support an organization that would perform the task of monitoring companies in order to ensure that they would not do such a thing.

2. Remember, money is just a means to an end, just because M$ has all the $ doesn't mean that all the defense agencies would follow them, nor that communitarian militias could not be organized sensitive

3. The entirety of society would lose in such a situation, and therefore there would be a huge amount of resistance to it.

4. Where would M$ find such widespread support when the soldiers would not only be fighting without the excuse of statism, but furthermore with the only excuse being that M$ wants to TAKE OVER THE WORLD!!! BWAHAHAHAHA!!!

5. Why would the M$ higher ups spend so much money when they have so much already? Seriously, WTF is that they can't buy. Furthermore, they are risking THEIR LIVES, a simple bomb in the right place could solve the whole thing.

6. Doesn't a single M$ employee being opposed to this plan and being in the right place in the right time blow this entire plan apart?

7. Addressing Telford's analogy (which I absolutely loved BTW cuz Nazi Zombies Pwns... Lol, there is a very good reason why I love this forum). You are assuming that

1. The person with the bolt action rifle can't upgrade, I've played my fair share of Nazi Zombies, believe you me, and I've never seen a case where just because one person has an uber weapon, the other doesn't get any kills, he can still get kills and then get more stuff from the mystery box. To put this in real world terms, just because M$ starts out better than Apple, certainly doesn't mean that it will be able to remain as such. Furthermore there are a great deal of enterprises in the world, not just two, millions which are very difficult to subjugate if they have a solid counter ideology.

2. That the person with the ray gun gains at all from subjugating the other. For one thing, this person is going to grow resentful, and not function as well as he otherwise would, indeed letting him rack up a few kills would be GREATLY beneficial to the team if he can get the PPSH, Wonderwaffle, Trench gun, or some other good weapon. Even if all he is doing is repairing windows he still gets minimal funds from this. Putting this into real life terms, there is alot to be gained from cooperation.

3. Now comparing the basic premise of exponential increase in power, this is not necessarily true in the slightest. I once read the book "The World is Flat" (good book) and it talks a little bit about how businesses can gain from being either small or large. For instance the local café would probably not work very well as a chain, but as it is now appealing to just the people in my town it functions incredibly well. Just because M$ gets big doesn't mean that it will necessarily grow exponentially in power and funds. It has to worry about to much bureaucracy, not appealing to the consumer in certain areas, competing with inventive entrepreneurs, ECT. Otherwise every company which ever became large would destroy all other competition and the world, by now, would all be owned by one company. M$ would have never been able to rise above IBM in the first place.

4. Now just to throw this in the mix, let's say that you buy the mystery box, the other guy has no where else to go, how exactly is this situation EVER going to be repeated in real life? Monopolies which are not extremely efficient cannot arise in the free market.

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C Le Master replied on Mon, Feb 8 2010 4:55 PM

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Wow Great answer Andrew Ryan. I have also read "The World Is Flat" by Friedman and disliked it but that is beyond the point. My question is, how could monopolies not arise in free market? Is it because there will always be competition to satisfy the market and keep one company from gaining control, and if they did gain control, they would have higher prices with no competition, people would stop buying from them, and new competition would arise to satisfy the new market?

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The Late Andrew Ryan replied on Mon, Feb 8 2010 5:13 PM

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Well monopolies aren't strictly impossible under a free market, I have to admit it and I'm pretty sure that in my post I said somthing along the lines of "indifferent monopoly" or somthing, but at anyrate you are correct, a "bad" monopoly is impossible because either competition will  arise or a new way of doing it will be found (let's say that you are charging a crapload of money for gas well now trains are more economically viable). For instance M$ is pretty much a monopoly now, admittedly Apple and a few others are still around but none the less it is close to a monopoly. M$ has done a good job of providing fairly quality and uniform software at a reasonable rate. I'm writing this on a computer run by M$ software which I got for about 600 dollars and a, quite happy with, therefore what would be the point of competition?

However if this computer cost 2,000 dollars then we would be having quite a different discussion right now...

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TelfordUS replied on Mon, Feb 8 2010 5:53 PM

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2. Absurdity: By his own line of reasoning, Microsoft can buy anything it wants.  It can buy all the bakeries and have a monopoly on bread and then starve everybody, or perhaps it can buy all of the shoes and have a monopoly on shoes.  Then we'll all be at the mercy of Microsoft begging for bread and shoes. 

A monopoly on bread or shoes would very likely stimulate a black market, since flour and water for bread and leather for shoes is relatively cheap commodities. If Microsoft's monopoly isn't enforced by state legislation, then a bakery or shoe store could open up and refuse to sell out to Microsoft, and it would have to survive on revenue from customers that would rather support their company rather than Microsoft, no matter how low Microsoft drives their prices. Kinda like a Standard Oil situation.

3.  Incentive: War is costly.  Unlike a government, which can externalize the costs of its action to all of its subjects, a private entity would have to bear the full cost at its own expense.  So the incentive for such costly aggression is very much working against you.

That doesn't make a war from a private entity impossible. If they own the means of starting a war, and they value starting and winning a war over being a non-aggressive company, then they might do it.

  B.  Capital Value -  What if the owners collude and sell their shares to raise the funds.  In this case, we are no longer talking about Microsoft the firm taking over the world, but a bunch of idiots who have sold their shares just so they can consume it.  And on what?  weapons? armed men?  How much fire power can they buy and how long can they sustain this army for, with nothing but a fixed amount of cash?  Remember, we are no longer talking about Microsoft but a bunch of individuals who have raised some cash in order to go on a criminal endeavor, which according to your friend is likely to conquer the world.

What if they don't?

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DD5 replied on Mon, Feb 8 2010 8:09 PM

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TelfordUS:

DD5:

2. Absurdity: By his own line of reasoning, Microsoft can buy anything it wants.  It can buy all the bakeries and have a monopoly on bread and then starve everybody, or perhaps it can buy all of the shoes and have a monopoly on shoes.  Then we'll all be at the mercy of Microsoft begging for bread and shoes. 

A monopoly on bread or shoes would very likely stimulate a black market, since .......

You completely misunderstood the point I was making here

TelfordUS:

That doesn't make a war from a private entity impossible. If they own the means of starting a war, and they value starting and winning a war over being a non-aggressive company, then they might do it.

Lack of incentive certainly makes it impossible.  To refute this point, you must show why and how such an incentive can arise. 

TelfordUS:

 

What if they don't?

What if they don't what?