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Marxist and Austrian Class Analysis

My topic is Marxist and Austrian class analysis. I want to do the following: first, I will present a series of theses that constitute the hard-core of the Marxist theory of history. I claim that all of them are essentially correct. And then I will show these true theses are derived in Marxism from a false starting-point. And finally, I want to demonstrate how Austrianism in the Mises-Rothbard tradition can give a correct but categorically different explanation of their validity.

Let me begin with the hard-core of the Marxist belief system.

The history of mankind is the history of class struggles. That is the history of struggles between a relatively small ruling class, and a larger class of the exploited. The primary form of exploitation is economic. The ruling class expropriates parts of the productive output of the exploited or, as Marxists say, it appropriates a social surplus product, and uses it for its own consumptive purposes.

Second, the ruling class is unified by its common interest in upholding its exploitative position, and maximizing its exploitatively appropriated surplus product. It never deliberately gives up power or exploitation income. Instead, any loss of power or income must wrestled away from it through struggles whose outcome ultimately depends on the class consciousness of the exploited. That is, on whether or not and to what extent the exploited are aware of their own status and are consciously united with other class members in common opposition to exploitation.

Third, class rule manifests itself primarily in specific arrangements regarding the assignment of property rights. Or in Marxist terminology: in specific relations of production. In order to protect these arrangements or production relations, the ruling class forms and is in command of the state as the apparatus of compulsion and coercion. The state enforces and helps reproduce a given class structure through the administration of a system of class justice. And it assists in the creation and the support of an ideological superstructure designed to lend legitimacy to the existence of class rule.

Fourth, internally, the process of competition within the ruling class generates a tendency towards increasing concentration and centralization. A multi-polar system of exploitation is gradually supplanted by an oligarchic or monopolist one. Fewer and fewer exploitation centers remain in operation, and those that do are increasingly integrated into a heirarchical order. And externally, that is as regards the international system, this internal centralization process will lead to imperialist interstate wars and the territorial expansion of exploitative rule.

Fifth, with the centralization and expansion of exploitative rule gradually approaching its ultimate limit of world domination, class rule will increasingly become incompatible with the further development and improvement of productive forces. Economic stagnation and crises become more and more characteristic, and create the so-called 'objective conditions' for the emergence of a revolutionary class consciousness of the exploited. The situation becomes ripe for the establishment of a classless society, the withering-away of the state, or the replacement of government of men-over-men by the administration of things. And, as its result, unheard-of economic prosperity.

All of these theses can be given a perfectly good justification, as I will show. Unfortunately however, it is Marxism, which subscribes to all of them, that has done more than any other ideological system to discredit their validity, in deriving them from a patently absurd exploitation theory. Now what is this Marxist theory of exploitation?

According to Marx, such pre-capitalist socialist systems as slavery and feudalism are characterized by exploitation. There is no quarrel with this, for after all the slave is not a free laborer, and he cannot be said to gain from his being enslaved. Rather, in being slaved, his utility is reduced at the expense of an increase in wealth appropriated by the slave-master. The interests of the slave and that of the slave-owner are indeed antagonistic.

The same is true as regards the interests of the feudal lord, who extracts a land-rent from a peasant who works on land homesteaded by himself -- that is, by the peasant. The lord's gains are the peasant's losses. And it is also undisputed that slavery as well as feudalism indeed hampers the development of productive forces. Neither slave nor serf will be as productive as they would be without slavery or serfdom.

But the genuinely new Marxist idea is that essentially nothing is changed as regards exploitation under capitalism. That is, if the slave becomes a free laborer, or if the peasant decides to farm land homesteaded by someone else, and pays rent in exchange for doing so. To be sure, Marx, in the famous chapter 24 of the first volume of his Capital, titled "The So-Called Original Accumulation", gives a historical account of the emergence of capitalism which makes the point that much or even most of the initial capitalist property is the result of plunder, enclosure, and conquest. And similarly, in chapter 25, on the modern theory of colonialism, the role of force and violence in exporting capitalism to the -- as we would now say -- third world, is heavily emphasized.

Admittedly, all this is generally correct. And insofar as it is, there can be no quarrel with labelling such capitalism exploitative. Yet one should be aware of the fact that Marx here is engaged in a trick. In engaging in historical investigations, and arousing the reader's indignation regarding the brutalities underlying the formation of many capitalist fortunes, he actually side-steps the issue at hand. He distracts from the fact that his thesis is really an entirely different one. Namely, that even if one were to have a 'clean capitalism' so to speak, that is, one in which the original appropriation of capital were the result of nothing else but homesteading, work, and savings, the capitalist who hired labor to be employed with this capital would nonetheless be engaged in exploitation. Indeed, Marx considered the proof of this thesis his most important contribution to economic analysis.

Now what then is his proof of the exploitative character of a clean capitalism? It consists in the observation that the factor prices, and in particular the wages paid to laborers by the capitalists, are lower than the output prices. The laborer, for instance, is paid a wage that represents consumption goods which can be produced in three days, but he actually works five days for his wage, and produces an output of consumption goods that exceeds what he receives as remuneration. The output of the two extra days -- the surplus value in Marxist terminology -- is appropriated by the capitalist. Hence, according to Marx, there is exploitation.

Now what is wrong with this analysis? The answer becomes obvious once it is asked why the laborer would possibly agree to such a deal. He agrees because his wage-payment represents present goods, while his own labor services represent only future goods, and he values present goods more highly. After all, he could also decide not to sell his labor services to the capitalist and then reap the full value of his output himself. But this would of course imply that he would have to wait longer for any consumption goods to become available to him. In selling his labor services, he demonstrates that he prefers a smaller amount of consumption goods now, over a possibly larger one at some future date.

On the other hand, why would the capitalist want to strike a deal with the laborer? Why would he want to advance present goods -- that is, present money -- to the laborer in exchange for services that bear fruit only later? Obviously he would not want to pay out for instance $100 now, if he were to receive the same amount in one year's time. In that case, why not simply hold on to it one year, and receive the extra benefit of having actual command over it during the entire time? Instead, he must expect to receive a larger sum than $100 in the future, in order to give up $100 now in the form of wages paid to the laborer. He must expect to be able to earn a profit -- or more correctly, an interest return.

And he is constrained by time-preference -- that is, the fact that an actor invariably prefers earlier over later goods -- in yet another way: for if one can obtain a larger sum in the future by sacrificing a smaller one in the present, why then is the capitalist not engaged in more saving than he actually is? Why does he not hire more laborers than he does, if each one promises an additional interest return? The answer again should be obvious: because the capitalist is a consumer too, and cannot help being one. The amount of his savings and investing is restricted [--audio glitch--] by the necessity that he too, like the laborer, requires a supply of present goods large enough to secure the satisfaction of all those wants, the satisfaction of which during the waiting time is considered more urgent than the advantags which a still greater lengthening of the period of production would provide.

Now what is wrong with Marx's theory of exploitation, then, is that he does not understand the phenomenon of time-preference as a universal category of human action. That the laborer does not receive his "full worth", so to speak, has nothing to do with exploitation, but merely reflects the fact that it impossible for man to exchange future goods against present ones except at a discount.

Contrary to the case of slave and slave-master, where the latter benefits at the expense of the former, the relationship between the free-laborer and the capitalist is a mutually beneficial one. The laborer enters the agreement because, given his time preference, he prefers a smaller amount of present goods over a larger future one. And the capitalist enters it because, given his time-preference, he has a reverse preference order, and ranks a larger future amount of goods more highly than a smaller present one.

Their interests are not antagonist, but harmonious. Without the capitalist's expectation of an interest return, the laborer would be worse off, having to wait longer than he wishes to wait. And without the laborer's preference for present goods, the capitalist would be worse off, having to resort to less-roundabout and less-efficient production methods than those which he desires to adopt.

Nor can the capitalist wage system be regarded as an impediment to the further development of the forces of production, as Marx claims. If the laborer were not permitted to sell his labor services, and the capitalist to buy them, output would lower, because production would have to take place with relatively reduced levels of capital accumulation.

Under a [--audio glitch--] homesteading, producing, and or savings. In each case it is brought about with the expectation that it will lead to an increase in the output of future goods. The value an actor attaches to his capital reflects the value he attaches to all expected future incomes, attributable to its cooperation, and discounted by his rate of time-preference.

If, as in the case of collectively-owned factors of production, an actor is no longer granted exclusive control over his accumulated capital and hence over the future income to be derived from its employment, but partial control instead is assigned to non-homesteaders, non-producers, and non-savers, the value for him of the expected income and hence then of the capital goods, is reduced. His effective rate of time-preference will rise. There will be less homesteading of resources whose scarcity is recognized, and less saving for the maintenance of existing -- and the production of new -- capital goods. The period of production, the round-aboutness of the production structure, will be shortened, and relative impoverishment will result.

If Marx's theory of capitalist exploitation, and his ideas on how to end exploitation and establish universal prosperity are false to the point of being ridiculous, it is clear that any theory of history which can be derived from it must be false too. Or, if it should be correct, it must have been derived incorrectly. Instead of going through the lengthier task of explaining all of the flaws in the Marxist argument as its sets out from its theory of capitalist exploitation and ends with the theory of history which I presented earlier, I will take a shortcut here.

I will now outline in the briefest possible way the correct Austrian, Misesian, Rothbardian theory of exploitation. I will then give an explanatory sketch of how this theory makes sense out of the class theory of history, and highlight along the way some key differences between this class theory and the Marxist one, and also point out some intellectual affinities between Austrianism and Marxism, stemming from their common conviction that there does indeed exist something like exploitation and a ruling class.

The starting-point for the Austrian exploitation theory is plain and simple, as it should be. Actually, it has already been established through the analysis of the Marxist theory. Exploitation characterized in fact the relationship between slave and slave-master, and between serf and feudal lord, but no exploitation was found possible under a 'clean' capitalism.

Now what is the principle difference between these two cases? The answer is this: the recognition or non-recognition of the homesteading principle. The peasant, under feudalism, is exploited because he does not have exclusive control over land that he homesteaded; and the slave, because he has no exclusive control over his own homesteaded body. If, contrary to this, everyone has exclusive control over his own body -- that is, everyone is a free laborer, and acts in accordance with the homesteading principle, there can be no exploitation.

It is logically absurd to claim that a person who homesteads goods not previously homesteaded by anybody else, or who employs such goods in the production of future goods, or who saves presently-homesteaded or produced goods in order to increase the future supply of goods, could thereby exploit anybody. Nothing has been taken away from anybody in this process, and additional goods have actually been created. And it would be equally absurd to claim that an agreement between different homesteaders, savers, and producers, regarding their non-exploitatively appropriated goods or services, could possibly contain any foul play then.

Instead, exploitation takes place whenever any deviation from the homesteading princple occurs. It is exploitation whenever a person successfully claims partial or full control over resources which he has not homesteaded, saved, or produced, and which he has not acquired contractually from a previous producer-owner. Exploitation is the expropriation of homesteaders, producers, and savers, by late-coming non-homesteaders, non-producers, and non-savers and non-contractors. It is the expropriation of people whose property claims are grounded in work and contract by people whose claims are derived from thin air, and who disregard other's works and contracts.

Needless to say, exploitation defined in this way is in fact an integral part of human history. One can acquire and increase wealth either through homesteading, producing, saving, or contracting -- or by by expropriating homesteaders, producers, savers, or contractors. There are no other ways. Both methods are natural to mankind. Alongside homesteading, producing, and contracting, there have always been non-productive and non-contractual property acquisitions.

And in the course of economic development, just as the producers and contractors can form firms, enterprises, and corporations, so can exploiters combine to large-scale exploitation enterprises -- to governments and states. The ruling class is initially composed of the members of such an exploitation firm. And with a ruling class established over a given territory, and engaged in the expropriation of economic resources from a class of exploited producers, the center of all history indeed becomes a struggle between exploiters and the exploited.

History then, correctly told, is essentially the history of the victories and the defeats of the rulers in their attempt to maximize exploitatively-appropriated income, and of the ruled in their attempts to resist and reverse this tendency. It is in this assesment of history that Austrians and Marxists agree. And by a notable intellectual affinity between Austrian's and Marxist's historical investigations exists. Both oppose a historeography which recognizes only action or interaction, economically and morally all on a par. And both oppose a historeography that instead of adopting such a value-neutral stand, thinks that one's own arbitrarily-introduced subjective value judgements have to provide the foil for one's historical narratives. Rather, history must be told in terms of freedom and exploitation, parasitism and economic impoverishment, private property and its destruction. Otherwise it is told false.

While productive enterprises come into or go out of existence because of voluntary support or its absense, a ruling class never comes to power because there is a demand for it. Nor does it abdicate when abdication is demonstrably demanded. One cannot say by any stretch of the imagination that homesteaders, producers, savers, and contractors, have demanded their exploitation. They must be coerced into accepting it, and this proves conclusively that the exploitation firm is not in demand at all.

Nor can one say that a ruling class can be brought down by abstraining from transactions with it, in the same way as one can bring down a productive enterprise. For the ruling class acquires its income through nonproductive and noncontractual transactions, and thus is unaffected by boycotts. Rather, what makes the rise of an exploitation firm possible, and what alone can in turn bring it down, is a specific state of public opinion -- or, in Marxist terminology, a specific state of class consciousness.

An exploiter creates victims, and victims are potential enemies. It is possible that this resistance can be lastingly broken down by force in the case of a group of men exploiting another group of roughly the same size. However, more than force is needed to expand exploitation over a population many times its own size. For this to happen, a firm must also have public support. A majority of the population must accept the exploitative actions as legitimate. This acceptance can range from active enthusiasm to passive resignation. But it must be acceptance in the sense that a majority must have given up the idea of actively or passively resisting any attempt to enforce nonproductive and noncontractual property acquisitions. The class consciousness must be low, undeveloped, and fuzzy.

Only as long as this state of affairs lasts, is there still room for an exploitive firm to prosper even if no actual demand for it exists. Only if and insofar as the exploited and expropriated develop a clear idea of their own situation, and are united with other members of their class through an ideological movement, which gives expression to the idea of a classless society where all exploitation is abolished, can the power of the ruling class be broken. Only if and insofar as the majority of the exploited public becomes consciously integrated into such a movement, and accordingly displays a common outrage over all nonproductive or noncontractual property acquisitions, shows a common contempt for everyone who engages in such acts, and deliberately contributes nothing to help them make successful, not to mention actively trying to obstruct them, can its power be brought down to crumble.

The gradual abolishment of feudal and absolutist rule and the rise of increasingly capitalist societies in Western Europe and the United States, and along with this unheard of economic growth and rising population numbers, was the result of an increasing class consciousness among the exploited, who were ideologically molded together through the doctrines of natural rights and liberalism. In this, Austrians and Marxists agree. They disagree however on the next assessment.

The reversal of this liberalization process, and steadily increased levels of exploitation in these societies, since the last third of the nineteenth century, and particularly pronounced since World War I, are the result of a loss in class consciousness. In fact, in the Austrian view, Marxism must accept much of the blame for this development, by misdirecting attention from the correct exploitation model of the homesteader-producer-saver-contractor vs. the non-homesteader-producer-saver-contractor, to the fallacious model of the wage-earner vs. the capitalist, thereby muddling things up.

The establishment of a ruling class over an exploited one many times its own size by coercion and the manipulation of public opinion -- that is, a low degree of class consciounsess among the exploited -- finds its most basic institutional expression in the creation of a system of public law, superimposed on private law. The ruling class sets itself apart and protects its position as the ruling class, by adopting a constitution for their firm's operation. On the one hand, by formalizing the internal operations within the state apparatus, as well as its relations vis-à-vis the exploited population, a constitution creates some degree of legal stability. The more familiar and popular private-law notions are incorporated into constitutional and public law, the more conducive this will be to the creation of favorable public opinion.

On the other hand, any constitution and public law also formalizes the exemptory status of the ruling class as regards the homesteading principle. It formalizes the right of the state's representatives to engage in nonproductive and noncontractual property acquisitions, and the ultimate subordination of private to public law. Class justice -- that is, a dualism of one set of laws for the rulers and another for the ruled -- comes to bear in this dualism of public and private law, and in the domination and infiltration of public law over and into private law. It is not because private property rights are recognized by law, as Marxists think, that class justice is established. Rather, class justice comes into being precisely whenever a legal distinction exists between a class of persons acting under and being protected by public law, and another class acting under and being protected instead by some subordinate private law.

More specifically then, the basic proposition of the Marxist theory of exploitation is false. The state is not exploitive because it protects the capitalist's property rights, but because it itself is exempt from the restriction of having to acquire property productively and contractually. In spite of this fundamental misconception however, Marxism, because it correctly interprets the state as exploitative, contrary for instance to the Public Choice school, which sees it as a normal firm among others, is on to some important insights regarding the logic of state operations.

For one thing, Marxism recognized the strategic function of redistributive state policies. As an exploitative firm, the state must at all times be interested in a low degree of class consciousness among the ruled. The redistribution of property and income, a policy of divide et emperor, is the state's means with which it can create divisiveness among the public, and destroy the formation of a unifying class consciousness of the exploited. Furthermore, the redistribution of state power itself, through democratizing the state constitution and opening up every ruling position to everyone, and granting everyone the right to participate in the determination of state personnel and policy, is a means for reducing the resistance against exploitation as such.

Secondly, the state is indeed as Marxists see it, the great center of ideological propaganda and mystification. Exploitation is really freedom; taxes are really voluntary contributions; noncontractual relations are really 'conceptually contractual' ones; no-one is ruled by anyone but we all rule ourselves; without the state neither law nor security would exist, and the poor would perish. All of this is part of the ideological superstructure, designed to legitimize an underlying basis of economic exploitation.

And finally, Marxists are also correct in noticing the close association between the state and business, especially the banking element, even though the exploitation is faulty. The reason is not that the borgeois establishment sees and supports the state as a guarantor of private property rights and contractualism. On the contrary, the establishment correctly perceives the state the very antithesis to private property that it is, and takes a close interest in it for this reason. The more successful a business, the [-- audio glitch --], but the larger also the potential gains that can be achieved if it can come under government's special protection, and is exempt from the full weight of capitalist competition. This is why the business establishment is interested in the state and its infiltration.

The ruling elite in turn is interested in close cooperation with the business establishment because of its financial powers. In particular, the banking elite is of interest, because as an exploitative firm, the state naturally wishes to possess complete autonomy for counterfeiting. By offering to cut the banking elite in on its own counterfeiting machinations, and allowing them to counterfeit on top of its own counterfeited notes, under a system of fractional reserve banking, the state can easily reach this goal, and establish a system of state monopolized money and cartelized banking, controlled by its central bank. And through this direct counterfeiting connection with the banking system, and by extension the bank's major clients, the ruling class in fact extends far beyond the state apparatus to the very nervous centers of civil society. Not that much different, at least in appearance, from the picture that Marxists like to paint of the cooperation between banking, business elites, and the state.

Competition within the ruling class, and among different ruling classes, brings about a tendency toward increasing concentration. Marxism is right in this. However, its faulty theory of exploitation again leads it locate the cause for this tendency in the wrong place. Marxism sees such a tendency inherent in capitalist competition. Yet it is precisely so long as people are engaged in a 'clean' capitalism, that competition is not a form of zero-sum interaction. The homesteader, the producer, saver and contractor, do not gain at another's expense. Their gains either leave another's physical possesions completely unaffected, or they actually imply mutual gains -- as in the case of all contractual exchanges.

Capitalism thus can account for increases in absolute wealth. But under its regime no systematic tendency towards relative concentration can be said to exist. Instead, zero-sum interactions characterize not only the relationship between the ruler and the ruled, but also between competing rulers. Exploitation, defined as non-productive and non-contractual property acquisitions, is only possible as long as there is anything to be appropriated. Yet if there were free competition in the 'business' of exploitation, there would obviously be nothing left to expropriate. Thus, exploitation requires monopoly over some given territory and population.

And the competition between exploiters is by its very nature eliminative, and must bring about a tendency toward relative concentration of exploitation firms, as well as a tendency towards centralization within each exploitative firm. The development of states, rather than capitalist firms, provides the foremost illustration of this tendency. There are now a significantly smaller number of states, with exploitative control over much larger territories, than in previous centuries. And within each state apparatus, there has in fact been a constant tendency toward increasing the powers of the central government at the expense of its regional and local subdivisions.

Yet outside the state apparatus a tendency toward relative concentration has also become apparent, and for the same reason. Not, as should be clear by now, by any trait inherent in capitalism, but because the ruling class has expanded its rule into the midst of civil society, through the creation of a state banking business alliance, and in particular through the establishment of a system of central banking. If a concentration and centralization of state power then takes place, it is only natural that this be accompanied by a parallel process of relative concentration and cartelization of banking and industry. Along with increased state powers, the associated banking and business establishment's powers of eliminating or putting economic competitors at disadvantage by means of non-productive or non-contractual exploitation increases. Business concentration is a reflection of state-ization of economic life.

The primary means for the expansion of state power and the elimination of rival exploitation centers, is war and military domination. Interstate competition implies a tendency toward war and imperialism. As centers of exploitation, their interests are by nature antagonistic. Moreover, with each of them internally in command of the instrument of taxation and absolute counterfeiting powers, it is possible for the ruling classes to let others pay for their wars. Naturally, if one does not have to pay for one's own risky ventures, but can force others to do so, one tends to be a greater risk-taker, and more trigger-happy, than one otherwise would be.

Marxism, contrary to much of the so-called borgeois social sciences, gets the facts right: there is indeed a tendency towards imperialism operative in history, and the foremost imperialist powers are indeed the most advanced capitalist nations. Yet the explanation is once again faulty. It is the state, as an institution exempt from the capitalist rules of property acquisitions, that is by nature aggressive. And the historical evidence of a close correlation between capitalism and imperialism only seemingly contradicts this. It finds its explanation, easily enough, in the fact that in order to come out successfully from interstate wars, a state must be in command of sufficient, in relative terms, of sufficient economic resources. Other things being equal, the state with more ample resources will win.

As an exploitative firm, a state is by nature destructive of wealth and capital accumulation. Wealth is produced exclusively by civil society, and the weaker the state's exploitative powers, the more wealth and capital society accumulates. Thus, paradoxical as it may sound at first, the weaker or a more liberal a state is internally, the further developed capitalism is. A developed capitalist economy to develop from, makes a state richer, and a richer state then makes for more and more successful expansionist wars. It is this relationship which explains why initially the states of Western Europe, and in particular Great Britain, were the leading imperialist powers, and why in the 20th century this role has been assumed by the United States.

And a similarly straight-forward, yet once again entirely non-Marxist explanation exists for the observation, always pointed out by Marxists, that the banking and business establishment is usually among the most ardent supporters of military strength and imperial expansion. It is not because the expansion of capitalist markets requires exploitation, but because the expansion of state-protected and -privileged businesses requires that such protection be extended also to foreign countries, and that foreign competitors be hampered through noncontractual and nonproductive property acquisitions in the same way or even more so than internal competition.

Specifically, the business elite supports imperialism if this imperialism promises to lead to a position of military domination of one's own allied state over another state. For then, from a position of military strength, it becomes possible to establish a system of -- as one might call it -- monetary imperialism. The dominating state will use its superior power to enforce a policy of internationally coordinated inflation. Its own central bank sets the pace in the process of counterfeiting, and the central banks of the dominated states are ordered to use its currency, the currency of the dominating state, as their own reserve currency, and inflate on top of it. This way, along with the dominating state, its associated banking and business establishment, as the earliest receivers of the counterfeit reserve currency, can engage in an almost costless expropriation also of foreign property owners and income producers.

A double-layer of exploitation of a foreign state and a foreign elite, on top of a national state and a national elite, is imposed on the exploited class in the dominated territories, causing prolonged economic dependency and relative economic stagnation vis-à-vis the dominant nation. It is this very uncapitalist situation that characterizes the status of the United States and the US dollar, and that gives rise to the quite correct charge of US economic exploitation and dollar imperialism.

Now I come to the last thesis. The increasing concentration and centralization of exploitative powers, leads to economic stagnation, impedes the development of productive forces, and thereby creates the objective conditions for its ultimate demise and the establishment of a classless society capable of producing unheard-of economic prosperity. Contrary to Marxist claims, this is not of course the result of any historical laws. In fact, there exists no such thing as historical laws as Marxists conceive of them. Nor is it the result of a tendency for the profit rate to fall, with an increased organic composition of capital, as Marxists phrase it -- that is, an increase of constant capital as compared to variable capital. Instead [--audio glitch--] of crises, that promote the development of a higher degree of [--audio glitch--].

Exploitation is destructive of wealth-formation. Yet in the competition of exploitative firms, that is of states, less-exploitative ones, because they are in command of more ample resources, will win out over more exploitative ones. Hence the process of economic imperialism, specifically of US imperialism, initially has a relatively [--audio glitch--].

State rule becomes increasingly recognized as incompatible with the further development of productive forces and economic growth. Anti-statist social pressures mount, and bring a process of withering-away the state. Contrary to the Marxist model, however, if and insofar as this occurs, it will not mean 'social' ownership of means of production. In fact, not only is social ownership economically inefficient, as I've already explained earlier, moreover it is in fact incompatible with the idea that the state is withering away. Because, if means of production are owned collectively, and if it is realistically assumed that not everybody's idea as to what to do with these means happens to coincide as if by a miracle, then it is precisely socially owned factors of production which require state action. That is, they require state action in order to impose one person's will on another disagreeing person's will.

Instead the withering-away of the state, then, and with this the end of exploitation, means the establishment of a pure private property society, ordered by nothing but private law.

Thank you.

(applause)

Hans-Hermann Hoppe delivered the above in 1988 at a Mises Institute event titled Marx and Marxism, and I transcribed it from the mp3 available from its media archive.

The State, the Intellectuals, and the Role of Anti-Intellectual-Intellectuals

My first public appearance as a speaker in the United States took place more than two decades ago here in New York City, in 1986, at the first major Mises Institute conference, held to celebrate Murray Rothbard's sixtieth birthday. And so I am particularly pleased to be back here.

Now, let me begin with the definition of a state. What must an agent be able to do to qualify as a state? This agent must be able to insist that all conflicts among the inhabitants of a given territory be brought to him for ultimate decision making, or be subject to his final review. In particular, this agent must be able to insist that all conflicts involving himself be adjudicated by him or his own agent.

And implied in the power to exclude all others from acting as ultimate judge, as the second defining characteristic of the state, is the agent's power to tax. That is, to unilaterally determine the price that justice-seekers must pay for his services.

Now based on this definition of a state, it is easy to understand why a desire to control a state might exist. For whoever is a monopolist of final arbitration within a given territory can make laws, and he who can legislate, can also tax. And surely, this is an enviable position.

More difficult to understand is how anyone can get away with controlling a state. Why would others put up with such an institution?

Now I want to approach the answer to this question indirectly. Suppose you and your friends happen to be in control of such an extraordinary institution. What would you do to maintain your position, provided of course: you didn't have any moral scruples? (laughter)

You would certainly use some of your tax income to hire some thugs. First, to make peace among your subjects, so that they stay productive and there is something to tax for you in the future. But more importantly: because you might need these thugs for your own protection, should the people somehow wake up from their dogmatic slumber and challenge you.

Now this will not do however, in particular if you and your friends are a small minority in comparison to the number of your subjects. And only if you are a small minority can you live a comfortable life on the backs of others. For a minority cannot lastingly rule a majority solely by brute force. It must rule by opinion. The majority of the population must be brought to voluntarily accept your rule.

This is not to say that the majority must agree with every one of your measures. Indeed, it may well believe that many of your policies are mistaken. However, it must believe in the legitimacy of the institution of the state as such. And hence, that even if a particular policy may be wrong, that such mistake is an accident that one must tolerate in view of the fact that some greater good is provided by this institution.

Yet how can one persuade the majority of the population to believe this? And the answer is: only with the help of the intellectuals. Now how do you get the intellectuals to work for you? To this the answer is easy. The market demand for intellectual services is not exactly high and stable. Intellectuals would be at the mercy of the fleeting values of the masses, and the masses are uninterested in intellectual, philosophical concerns. The state, on the other hand, can accomodate the intellectual's typically over-inflated egos, and offer them a warm, secure, and permanent berth in its apparatus.

However it is not sufficient that you employ just some intellectuals. You must essentially employ them all, even the ones who work in areas far removed from those that you are primarily concerned with, that is philosophy, the social sciences, and the humanities. For even intellectuals working in mathematics or the natural sciences for instance can obviously think for themselves, and so can become potentially dangerous. It is thus important that you secure also their loyalty to the state.

Put differently: you must become a monopolist. And this is best achieved if all educational institutions, from kindergarten to universities, are brought under state control, and all teaching and researching personnel is state-certified.

But what if the people do not want to become educated? For this, education must be may compulsory. And in order to subject the people to state controlled education for as long as possible, everyone must be declared equally educable. The intellectuals know such egalitarianism to be false, of course, yet to proclaim nonsense such as everyone a potential Einstein, if only given sufficient educational attention, pleases the masses and, in turn, provides an almost unlimited demand for intellectual services.

Now, none of this guarantees correct statist thinking, of course. It certainly helps however, in reaching the correct statist conclusion, if one realizes that without the state one might be out of work, and may have to try one's hands at the mechanics of gas-pump operation, instead of concerning oneself with such pressing problems as alienation, equity, exploitation, the deconstruction of gender and sex roles, or the culture of the Eskimos, the Hopes, and the Zulus. (applause)

Now, in any case, even if the intellectuals feel underappreciated by you, that is by one particular state administration, they know that help can only come from another state administration, but certainly not from an intellectual assault on the institution of a state as such. Hence, it is hardly surprising that, as a matter of fact, the overwhelming majority of contemporary intellectuals, including most conservative or so-called free-market intellectuals, are fundamentally and philosophically statists.

Now has the work of the intellectuals paid off for the state? I would think so. If asked whether the institution of the state is necessary, I do not think it is exaggerated to say that 99% of all people would unhesitatingly say yes.

And yet, this success rests on rather shaky grounds, and the entire statist edifice can be brought down, if only the work of the intellectuals is countered by the work of anti-intellectual intellectuals, as I like to call them.

The overwhelming majority of state supporters are not philosophical statists. That is, statists because they have thought about the matter. Most people do not think much about anything philosophical at all. They go about their daily lives, and that is it.

So most support stems from the mere fact that the state exists, and has always existed as far as one can remember, and that is typically not farther away than one's own lifetime. That is, the greatest achievement of the statist intellectuals is the fact that they have cultivated the masses' natural intellectual laziness or incapacity, and never allowed for the subject of the state to come up for serious discussion. The state is considered as an unquestionable part of the social fabric.

The first and foremost task of the anti-intellectual intellectuals, then, is to counter this dogmatic slumber of the masses by offering a precise definition of the state as I have done at the outset, and then to ask if there is not something truly remarkable, odd, strange, awkward, ridiculous, indeed ludicrous about an institution such as that.

I am confident that such simple definitional work will produce some very first but serious doubt regarding an institution that one previously had been taking for granted. And that seems to be a good start. Again, recall: a state is an institution that decides who is right and wrong in conflicts involving itself.

Now, further, proceeding from less sophisticated yet not incidentally more popular pro-state arguments to more sophisticated ones: to the extent that intellectuals have deemed it necessary to argue in favor of the state at all, their most popular argument, encountered already at kindergarten age, runs like this:

Some activities of the state are pointed out: the state builds roads, kintergarten schools, it delivers the mail and puts the policeman on the street. Imagine there would be no state. Then we would not have these goods. Thus, a state is necessary.

And at the university level, a slightly more sophisticated version of the same argument is presented. It goes like this:

True, markets are best at providing many or even most things, but there are other goods that markets cannot provide or cannot provide in sufficient quantity or quality. And these other so-called 'public goods' are goods which bestow benefits unto people beyond those people who have actually produced or paid for them. Foremost among such goods ranks typically education and research. Education and research for instance, it is argued, are extremely valuable goods. They would be underproduced however, because of 'free riders'. That is, cheats who benefit via so-called 'neighborhood effects' from education and research without actually paying for it. Thus, the state is necessary to provide otherwise underproduced or unproduced 'public goods' such as education and research.

Now these statist arguments can be refuted by a combination of three fundamental insights.

First, as for the kindergarten argument, it does not follow from the fact that the state provides roads and schools that only the state can provide such goods. People have little difficulty recognizing that this is a fallacy. From the fact that monkeys can ride bikes, it does not follow that only monkeys can ride bikes.

And secondly, immediately following, it must be recalled that the state is an institution that can legislate and tax. And hence, that state agents have little incentive to produce efficiently. State roads and schools will only be more costly, and their quality will be lower. For there is always a tendency for state agents to use up as many resources as possible doing whatever they do, but actually work as little as possible doing it.

Now third, as for the more sophisticated statist argument, it involves exactly the same fallacy encountered already at the kindergarten level. For even if one were to grant the rest of the argument, it is still a fallacy to conclude from the fact that states provide public goods that only states can do so. But more importantly, it must be pointed out that the entire argument demonstrates a total ignorance of the most fundamental fact of human life, namely scarcity. True, markets will not provide for all desirable things. There are always unsatisfied wants as long as we do inhabit the Garden of Eden. But to bring such unproduced goods into existence, scarce resources must be expended, which consequently can no longer be used to produce other likewise desirable things. Whether public goods exist next to private ones does not matter in this regard. The fact of scarcity remains unchanged. More public goods can only come at the expense of less private goods. Yet what needs to be demonstrated is that one good is more important and valuable than another one. This is what is meant by 'economizing'.

Yet can the state help economize scarce resources? This is the question that must be answered. In fact, however, conclusive proof exists that the state does not and can not economize. For in order to produce anything, the state must resort to taxation or to legislation, which demonstrates irrefutably that its subjects do not want what the state produces but actually prefer something else as more important than those things produced by the state.

Rather than economize, the state can only redistribute. It can produce more of what it wants, and less of what the people want. And to recall, whatever the state then produces will be produced inefficiently.

Finally, the most sophisticated argument in favor of the state must be briefly examined. From Hobbes on down this argument has been repeated endlessly. It runs like this:

In the state of nature, that is before the establishment of a state, permanent conflict reigns. Everyone claims a right to everything and this will result in interminable war. There is no way out of this predicament by means of agreement, for who would enforce these agreements? Whenever the situation appeared advantageous, one or both parties would break the agreement and conflict would result. Hence, people recognize that there is but one solution to the desirable goal of peace, namely the establishment, per agreement, of a state. Namely, a third independent party as ultimate judge and enforcer.

Yet, if this thesis is correct, and agreements require an outside enforcer to make them binding, then a state by agreement can never come into existence. For in order to enforce the agreement which leads to the establishment of a state, to make this agreement binding so to speak, another outside enforcer, a prior state, would already have to exist. And in order for this state to come into existence, yet another still earlier state must be postulated, and so an infinite regress results.

On the other hand, if we accept that states do exist, and of course they do, then this very fact contradicts the Hobbesian story. The state itself has come into existence without any outside enforcer. At the time of the alleged agreement, no prior state existed.

Moreover, once a state is in existence, the resulting social order still remains a self-enforcing one. To be sure, if A and B now agree on something, their agreements are made binding by an external party, the state. However, the state itself is not so bound by any outside enforcer. There exists no external third party insofar as conflicts between state agents and state subjects are concerned. And likewise, there exists no external third party for conflicts between different state agents. Insofar as agreements entered into by the state are concerned, that is such agreements can only be self-binding on the state. That is, the state is bound by nothing except its own self-accepted and enforced rules, the constraints that it imposes on itself.

Yet this is precisely what the Hobbesian story wants to rule out as impossible, namely a social system capable of producing peace and security based on the self-enforcement of rules.

Now this brings me to the final step in my argument.

If the failures of the pro-state arguments are so apparent, and the anti-state or anarchist position is so compelling, why then are anti-intellectual intellectuals so unsuccessful in making their case? The reason is, that ideas don't spread on its own. For ideas to spread it requires proponents of these ideas. And these proponents cannot live off love and air alone. Anti-intellectual intellectuals too require resources to sustain a living, so that they can write and teach. And if they want to be effective in their work, they require an institutional support system that helps promote and distribute their ideas.

This is the crux of the problem, then. True, the distribution of ideas, also unorthodox ideas has become much easier in recent decades with the development of the internet. However this does not change in the slightest the fact that 99% or so of all intellectuals are directly or indirectly supported by the state, and that 99% or so of all institutional support of education and research is state-financed, with predictable consequences.

That is to say, there is simply not enough financial support available for anti-intellectual intellectual endeavors to turn the currently miniscule minority of principled anti-state intellectuals into the critical mass necessary to overcome the overwhelming odds in favor of the state.

True, some anti-intellectual intellectuals have managed to slip through the cracks, and a few have even attained pampered positions within the current statist education and research system. But these are institutional accidents, which are quickly repaired within the system, by either corrupting these individuals, or rendering them institutional ineffective and freezing them out. Hence, there is no way around the insight that there are not enough anti-intellectual intellectuals around because there is insufficient funding to support them in larger numbers, compelling many potential anti-state intellectuals to choose other, non-intellectual careers.

Hardly surprising the state had its hands in creating this situation. Namely, by doing its very best to destroy what I call the natural elites. Natural elites are men of independent wealth and independent minds. Competing as such most directly with the state's monopolist aspiration as ultimate judge, natural elites everywhere are considered potentially dangerous by the state. Accordingly, to reduce this danger, the state has co-opted members of the natural elite into the state system and thereby made their wealth dependent on continued friendly behavior on their part. Or else it has confiscated or threatened to confiscate their wealth. And in any case it has sucked them all into the very same education system as everyone else.

To be sure, there still exist wealthy men. Indeed, more of them exist today than ever before. But increasingly less of them can be described as independently wealthy, because most of their wealth can be destroyed in the blink of an eye by the state.

Nor is there a lack of intelligence to be found among these people. But as a result of decades of relentless educational propaganda, their once independent minds have become dulled, clouded, and corrupted. They feel guilty about their wealth and dabble in politically-correct so-called 'social endeavors' to compensate for their alleged sins.

And in any case, the rich and famous today embrace the very same easy-to-be-manipulated high-time-preference lifestyle of "don't worry, be happy" as the masses.

Yet not all hope is lost. Because there exists the Mises Institute, which, within the twenty-five years of its existence, has become the world's leading center of anti-statist intellectual work. And despite all efforts to the contrary, and however reduced in numbers and strength, there still exists some remnants of a natural elite, as the presence of you, the supporters of the Mises Institute, proves.

Together, with your help, the moral and economic perversion that is the state can be exposed. With some luck, we may actually initiate a genuine social revolution, namely the triumph of liberty and with it, unheard of prosperity over state tyranny, impoverishment, and waste.

Or we may at least contribute to the fact that matters do not become worse, or become worse only more slowly. And in any case, together, we can take pride in the fact that we made a contribution to keep moral and economic truths alive.

Thank you.

(applause)

Hans-Hermann Hoppe delivered the above at the Mises Institute's 25th Anniversary Celebration, 13 October 2007, in New York City. The above is a transcription of the mp3 available at Mises.org.

A World Without Theft

-- go back to the Garden of Eden. (laughter) (applause)

They didn't have microphones then at that time, but what they did have was a superabundance of goods, and if you have a superabundance of goods then it is impossible that human beings have any conflicts with each other, because what should they fight about, if there exists a superabundance of things.

Except of course, in two regards even in the Garden of Eden problems would exist, namely with regard to our own physical bodies. That is still scarce -- we have only one of them, not millions. And of course the standing room on which our physical bodies rest.

And insofar as scarcity exists, even in the Garden of Eden in these two regards, conflicts are possible. And because conflicts are possible, it would be even in the Garden of Eden necessary to have certain rules in order to avoid these conflicts. And the rules would have to be rules assigning rights of exclusive control, rights of ownership with regard to scarce resources, namely our bodies.

And what the rules would be most likely adopted in the Garden of Eden would be: every person is the owner of his own physical body and can do with it whatever he wants with his own physical body and anybody else who wants to do something to me or I want to do something to somebody else, he would need the permission of the owner.

And the second rule that we would need is: I can move around wherever I want, but I cannot try to occupy a space that has already been occupied by someone else.

And outside of the Garden of Eden, where we have all-around scarcity, and all sorts of conflicts can arise, we would also need rules that avoid conflicts in this situation. And again, without going into very detailed explanation what sort of rules would be most likely adopted outside of the Garden of Eden, there would be again: every person owns his own physical body, we acquire the right of exclusive control over scarce resources that were previously unowned, by being the first one to put scarce resources to some use. The third rule would be: whoever uses his physical body and some originally apropriated, previously unowned goods and further produces something with the help of his body and so forth, would be the owner of whatever he has produced. And the final rule would be the rule that exclusive rights of control over scarce resources can also be acquired by voluntarily transferring ownership from the previous owner to a later owner.

These elementary rules are very old rules, through all of mankind basically these rules have been recognized. They make intuitive sense. We can even see them adhered to in the animal kingdom to a certain extent. And we recognize that even small children for instance recognize the rule that he who uses something first becomes the owner of it, because whenever kids get into a fight the first thing that they point out is that I played with the toy first, and until I drop it you had better leave me alone.

It should also be clear that the alternative to these rules are rather absurd. The first alternative to self-ownership would be slavery, which is morally objectionable as well as economically inefficient. If the second person coming along would become the owner of something, then the second person would become the first because the first one wouldn't do it. And that has absurd consequences. If the first owner would have to share ownership with other people, then again conflicts would not be avoided and in addition this would be economically unproductive, because the incentive to be the first would be reduced and so forth. The incentive to be the producer would be reduced if the producer would have to share his property with those people who have not produced it, and so forth.

Now the next problem that then arises is: even if we recognize the truth, the morality, the economic efficiency of these sorts of principles, what do we do about those people who do not respect these rules? And of course there are always people who break these rules. That is, we need some institution that enforces and threatens with punishment breakers of rules.

And the traditional answer to the question who is in charge of enforcing these rules and threatening potential violators of these rules with punishment in case they do not adhere to these rules, the traditional answer is: this is the task of the state. This is the sole and only task of the state.

Now whether this answer is correct or not depends on what is the definition of the state. Now states are traditionally defined as being a territorial monopolist of ultimate decision-making or ultimate arbitration in cases of conflict. In every case of conflict, the ultimate judge who is right and who is wrong, is the state. And because the state is the monopolist of ultimate decision making, the state has then by implication also the right to say what the price for its arbitration is, and it can unilaterally impose what the price would be, that is to say: the state is also a territorial monopolist of taxation.

Now once we have this definition of the state in front of us, then it is not all that difficult to discover that there is something wrong with this answer to the question who should enforce the rules that I initially explained.

First of all we have a classical argument against any type of monopoly. And as I said, the state is a monpolist. He is the only one that can do such-and-such. The classical argument against monopolists is: whenever we do not have free entry into a specific line of production, in this case the production line of arbitration, of police protection and so forth. Whenever we have restrictions with regards to free entry, then producers are no longer forced to produce at the lowest possible cost. As long as free entry exists producers must produce at the lowest possible cost because otherwise they will invite competition against them.

And monopolists because of that tend to be, from the point of view of consumers, more pricey, and the quality of their product tends to be lower than it would be if competition existed in their area of production.

But when it comes to the state, matters are actually worse than in the case letsay of a milk monopoly, which would produce milk at above minimum cost, price would be higher quality of the milk would be lower. But in the case of government, the problem is that governments do not just produce maybe lousy goods. But they can actually produce bads.

Namely in the following sense: because governments are the ultimate arbitrator in any type of conflict, governments can also cause conflicts and then decide, when it comes to who is right and who is wrong in the case of conflicts, in their own favor. And given that they are human beings just like everyone else, and realize this possibility, of course they will cause conflicts and then decide the conflicts in their own favor and then on top of it they determine what the price of the victims of their misjustice have to pay for this misservice of causing conflicts, deciding them in their own favor, and what the price for this must be.

So this is the fundamental problem with having a state in charge of this particular task. And now this problem is even compounded if we have a democratic state in front of us. The classical liberals, who proposed the state as the solution to the problem of social conflicts, faced as their opponents typically monarchical governments, kings and queens. And they rejected the rule of kings and queens for the simple reason that they thought that they had privileges, that they were treated differently by the law than the rest of the people were. And they advocated, instead, that the state should be organized democratically, by making the point that if everyone can enter the state, not just some king or queen, then we have so to speak equality before the law.

However it turns out that this is of course a fundamental mistake to think that once you create open entry into every governmental position that you have equality before the law. What actually happens is that we substitute a democracy for monarchy, is we replace personal privileges -- privileges restricted to the king and queen and so forth -- with functional privileges, privileges that are given to public officials.

But in fact the distinction between 'higher law' and 'lower law' exists in a democracy just as much as it exists under monarchy. In the form of two different types of law: one that we call 'public law', that covers so to speak the actions of public officials, and 'private law' that covers the activities of private citizens.

As a private citizen, you may not steal. As a public official however, covered by public law, you can steal.

As a private citizen, you may not enslave somebody else. On the other hand, if you do the same as a public official, draft somebody into the army for instance, then that is perfectly alright.

If you steal from somebody and give it to somebody else, that is fence stolen goods, this is considered to be under private law a crime. If you do it as a public official it's called redistribution of income.

So under public law you can do certain things that under private law would be considered to be illegal. So the distinction between two types of law exists still exists under democracy just as much as it exists under monarchy.

In addition there are some more problems arising once we have a democracy. What you do is you exchange somebody, the king or queen who considers the country his own private property, with somebody, a democratically elected politician, who is the temporary caretaker of public property. And now ask yourself: will this make a difference in terms of the behavior of these two individuals? And the answer of course is it will make a fundamental difference.

If you consider yourself the owner of a country, you will as every private owner does, by and large be concerned about preserving or enhancing the value of the country. After all, you want to pass on something valuable to the next generation. You might even sell off some of this and are concerned about the price that you will get for whatever you sell off and so forth.

On the other hand, if you are just a temporary caretaker, and not the owner of it, then you will take the short-run perspective: I have to loot the country as fast as possible because I only have four years to do it (laughter) and no chance afterwards.

So you will be engaging in capital consumption, rather than in the preservation and the enhancement of the capital value embodied in the country.

In addition, it is frequently pointed out that but isn't it good that we have open entry into the position of governmental rulers under democracy whereas entry into governmental positions under monarchy is of course restricted by accident of birth.

Now, what is wrong with this argument is the fact that: yes, open entry is good as long as we are talking about the production of goods. But open entry is not good when it comes to the production of bads -- and I already explained that governments produce something bad.

We would not want to have open competition in who is the best killer; we would not want to have competition in who steals more effectively than other people do.

And when it comes to this we notice some very important difference. A king might be bad, that is true, as all governmental positions can be filled by bad people. But because he is a member of a family, other family members will have an interest in containing people who are bad because they might just lose the property of the family, might threaten the position of the dynasty, and bad kings are typically surrounded by members of his own family, by entourage, that controls him.

And if need be, they get killed, if they just go out of line.

And on the other hand a king can be conceivably a good and decent person, because it just an accident of birth that he comes into his position.

But now look at a democratic politician: a democratic politician can never be good. Because he has to just compete openly for this position, and in order to be elected to this he must be a very good and proficient liar, cheater, somebody who is 'good' in terms of qualities that we definitely do not want to have.

So we might have good kings; we will never have anybody of any decent moral values ever coming into the position of President or Prime Minister or whatever it is.

So now we come then to the question: what is the right answer to the question of how do we enforce the rules that I initially mentioned? Self-ownership, first-use-first-own principle, producer owns whatever he has produced, and the rule of you can acquire property through voluntary exchange.

And the correct answer is: the enforcement of these rules has to occur by individuals and agencies that are bound by the same rules as everybody else. That is, we need a society where the only type of law that is in existence is private law. No such institution that is covered by public law, which of course as I explained is a misnomer, it is not public law, it is just criminal activities masquerading as law.

Now this, if the enforcement of these rules also has to occur by individuals and agencies bound by the same rules, involves then two things.

One the one hand, unlimited rights to self-defense must be permitted. And the immediate implication of course of this is that private ownership of weapons and guns must be permitted in any free society. And despite everything that we always hear from governments in terms of contrary propaganda, there is an untuitively sensible rule that says: the more guns there are, the less crime will exist. And the wild west, contrary to what some movies insinuate, is a clear indication of the fact that this is indeed the case. If people own guns, private ownership of guns is unrestricted, then there will be less crime.

But in complex societies of course, we will not want to provide for our own security only by our own means. We do not make our own suits or shoes; we rely on the division of labor in this regard. And of course in every complex society we would want to rely on division of labor, on specialized agencies, and agents also when it comes to the protection of private property rights.

And a very important role, in a free society when it comes to the protection of these rules that I mentioned before, would be insurance agencies, and associated with insurance agencies, directly or indirectly: police, detective, and arbitration agencies.

Now what would be the result of this, and a very brief comparison between the state provision of security and the provision of security by freely-funded insurance operations. The first thing would be: there would be a drastic fall in the price that we have to pay for security. As I explained, the tendency under monopolist provision of security is the price of security always goes up, we have to pay more and more, and we get lower and lower quality of protection. Precisely the opposite would occur if there were competition in this area.

The second fundamental change that would occur with regard to how much security should be produced. Every resource that is expended on providing us with security can no longer be used to provide us with other things. Money spent on security can no longer be spent on vacations, on beer and wine and food and whatever it is. Normally people decide voluntarily, based on their own judgement how important security is to them as compared to other needs that they might have.

If you have government deciding for you how much security you need, they will of course decide: the more I can spend the better it is. That this involves a restriction of satisfaction of other needs is of no concern. That is, if we have competition in this area, there will be no overproduction of security.

The next point I want to emphasize is: would there be a large amount of money, resources, expended on victimless crimes, if we had competing insurance agencies wanting to protect us. As we all know, currently huge amounts of resources are expended on combatting victimless crimes, such as drug use, prostitution, gambling, whatever it is. But it should be perfectly clear that, as much as many people dislike these type of activities, since these activities are victimless crimes and we are not directly affected in our own property by the existence of these types of activities, very few people would be willing to spend huge amounts of money to be protected from something that they do not see as a threat.

Insurance agencies that would want to protect you against these sorts of things would obviously have to charge higher premiums than insurance companies that would abstain from protecting you against these things. And since most people are not affected by such things, insurance companies that would offer services such as this would likely go out of business very quickly. So victimless crimes would tend to be treated for what they are, namely as not a big deal at all, and likely no persecution of the perpetrators of victimless crimes would occur.

More important than this is the following: insurance companies would indemnify you in case they fail in the task that they have accepted in return for you paying a premium. Governments on the other hand, monopolists of course do not indemnify you if they fail. If somebody steals from you, robs you, mistreats you and so forth, the government will not come and say: look we failed in what we promised to do, and because we failed you we will offer you compensation of such-and-such an amount. I have at least never heard of any government anywhere doing anything like this, and I'm sure that you have never heard anything like this also.

Why would insurance companies be good at this? They would be good at prevention of crime because whatever they can prevent, they would not have to pay up for it. A government police officer on the other hand, if he does fail to prevent a crime, he gets his salary paid no matter what. And in this situation it is of course better to hang around at 7-11 stores than just trying to prevent what he is supposed to prevent.

When it comes to the next thing that we want is, we want things that have been stolen, taken from us and so forth, returned to us if at all possible. What is the incentive of governmental police to find stolen goods, to find the loot? Anyone who has any experience with this knows that the police will file a report and then you ask them what will you do about these goods and they will say we will file it away, and that's the end of the story. By accident sometimes things might be recovered, but only by accident.

What incentive on the other hand exists for insurance companies to recover things, the answer is: because they otherwise have to indemnify you, of course they have the financial incentive to recover whatever they can recover at reasonable cost. I had an acquantance whose VW got stolen in Italy. He went to the Italian police and asked them what will you do it about and they said "nothing". And then he reported this to his insurance company and a week later the insurance detective discovered where his car was. Of course the car was pretty much worthless also, but nonetheless you can see that there's an entirely different incentive in both cases.

And the last thing that you want of course is like, that the perpetrators of the crime are found and captured, and that they have to compensate the victim. Now how likely is it that the government finds the perpetrators? In capital crimes yes they do occasionally find them, because public opinion pressure is quite high. In crimes of a lesser sort: rarely if ever, do they apprehend the criminal.

And if they do apprehend the criminal, what will they do with the criminal? Will they force the criminal to now compensate the victims? And again I have never heard of this. Quite to the contrary they will probably jail the person, and the victim plus other taxpayers are forced to even pay for the incarceration of the person who victimized them in the first place, and if I remember correctly incarceration in the United States, per person per year, costs about $70,000 or in the neighborhood of this. There you can just engage in physical workouts, you have TV, you complain if you don't get your right muesli in the morning. And you might even study law, to prepare yourself for the next apprehension, you know how to better defend yourself. And all the rest of it. And does the victim ever see a penny out of this? And the answer's of course: never ever.

Would insurance companies operate like this? Imagine an insurance company would tell you: this is the condition under which I insure you, as soon as we apprehend the criminal, we will ask you also just to pay for his incarceration. I don't think that insurance companies would get very far with this type of treatment.

Next point: how about the point of disarmament of the public? As we all know, governments of course always disarm people. In the United States we are not as 'progressive' as in many other countries, but we are definitely moving in the direction of disarming the citizenry, increasingly also. And it should be perfectly clear that a business that is in the business of taxing you is interested in disarming those people that they want to tax.

But now imagine that you would go to an insurance company and the first question that they ask you: do you have any arms, weapons, dangerous objects, at home? And you say yes I do. And they would say: but the first condition attached to insuring you is that you have hand over all of these things to me. I think everyone except a moron would immediately recognize that there must be something suspicous about an agency such as this, that wants to disarm you first as a condition of protecting you afterwards.

Quite to the contrary, insurance agencies would actually encourage you to own guns, and to prove to them that you know how to safely handle these instruments, and would likely offer you a reduction in your premium that you have to pay, if can show that you are proficient in the handling of instruments of self-defense. Just as insurance companies offer you a reduction in the premium if you have a safe at home, as compared to just storing your family heirlooms on top of the kitchen table, so they would likely offer you a reduction in premium if you can show them yes, I own a gun, yes I have a training course, yes I have a certificate that shows that I know how to handle these things and so forth. So a very different type of treatment you would get there.

Moreover, insurance companies are by their very nature defensive organizations. And I should emphasize this because states of course are by their very nature aggressive institutions. Because, given that all people have a certain inclination to be aggressive, some people more than others. But assuming so to speak a natural inclination of being aggressive, if you can externalize the cost of being aggressive onto other people. That is, I don't have to pay all the price myself for being aggressive, pay my own body guards, pay for my own weapons, but I can make other people to pay for my own aggression, which I can of course once I can tax people, then I will tend to be more aggressive than I would naturally be.

Insurance companies, who cannot resource to taxation, must because of this be defensive. Aggression is an expensive proposition, and you will have to charge higher premiums if you engage in aggressive activities. If you charge higher premiums then of course you will tend to be less attractive. Most people will prefer not to be insured with aggressive agencies but with defensive agencies because this is less costly.

And not only this. Insurance companies will also make it as a requirement of all the clients that they insure that they themselves should engage in non-aggressive behavior. No insurance company would cover the risk for instance that I provoke you, then you retaliate, and then I go to my insurance company and complain about you having attacked me. Instead they would just say: look, you provoked first and then retaliation ensued, and risks of this nature will not be covered.

So, as a condition of insurance, they will impose on you code of conduct, that forces you to accept a behavioral style that is civilized, so to speak. That will also include that insurance companies will most likely insist that you do not engage in vigilante justice. Not that self-defense under certain circumstances would be excluded, but in order to make retaliation and permanent conflict, to rule that out as far as possible, they would insist: if something has happened, please come to us and there will be some sort of regular procedures set in motion in order to avoid any unnecessary conflicts.

Furthermore, if we would have competition in the protection of private property rights, we will get on the one hand a greater variety of law and on the other hand as I will explain in a minute, a greater unification of law. What will happen on the one hand is, there might be insurance agencies or protection agencies that offer you to apply letsay Canon law. There might be others that offer to apply Mosaic law. There might be others that propose to use Islamic law, and so forth. These rules would only apply of course to people who are insured with the same company. Everybody being insured with one company knows, these are the laws that will apply to me, and everybody else who is insured with the same company. They agree to this type of law and the law procedures. So there we would have a greater variety of laws, everybody could live so to speak under those rules that he wants to accept in his own case.

On the other hand of course: conflicts can also arise between members that are insured by different law agencies, that have internally different types of law codes. And it should be perfectly clear that in conflicts between members of different types of law codes, then, in order to resolve their conflicts, we would have to have independent arbitration. And in these independent arbitration of inter-agency conflicts, there then a tendency would emerge of hammering-out the principles of procedures, punishment, conflict-resolution, and so forth, that can be said to be truly universal.

That is, so to speak, the smallest common denominator, uniting, combining all the different internal law codes that exist. So we would get a greater variety of law and at the same time enormous incentive to create a unified, international type of private law, developed by arbitration agencies competing against each other in cases of inter-agency arbitration.

Which brings me to my last point, that is to say, in such a situation, with competing insurance providers, we would first of all get contracts offered about what will be done in what cases. Currently, when it comes to the question do we get any conflicts offered, the answer is of course: no, there is no contract offered at all. The government only promises to do something, but they never say what exactly it is that they will do, and in addition they even change the rules of the game as they go along. They engage in legislation. They change the laws. Something that might be legal today might be illegal tomorrow, and vice-versa. An insurance company that would say OK we will not promise you exactly what we will do and also we will reserve the right to change the rules of procedure as we go along without your consent again would not be able to get a single client to agree to such a thing.

And an insurance company would have to offer a conflict that has provisions first for the first contigency that everyone can forsee: that is, what will you do in case I have a conflict with somebody insured by you, just as you insure me? That is, what would you do in cases if two clients of yours have a conflict with each other. Obviously the contract would have to have provisions what to do in this case.

And secondly, these contracts provided by insurance companies would also have to have provisions: what do you do in cases when I have a conflict with a member of a different insurance agency? And in order to be believeable, they must have a provision that says: in such a case of course we will go to third party independent arbitration. All insurance companies would likely have a provision such as this. Yes, if conflict exists between client A and client B, both clients are insured with a different company, an independent arbitrator will be appealed to.

And there exists competition in the field of independent arbitration, too. That is, no arbitrator can be sure that in the next case of arbitration, he again will be approached with the task of being an arbitrator, but other people can be approached as well. And given the fact that he can be removed from his position, his incentive is indeed to come up with a solution that is regarded as a fair solution by the clients of all companies involved in the dispute, because otherwise he will most likely not be chosen again. Which again emphasises this pressure of creating a body of law that is truly universal.

We would then have enhanced legal predictability, in contrast to ever-changing and flexible legislation. We would have legal certainty instead of flexible laws. And I think our private security and the protection of our property rights would be taken care far better than that is the case under the current, monopolist situations.

I know that these thoughts are familiar to some. To some they might sound somewhat strange the first time you hear them. I make you aware of the fact that I have written extensively on this subject, and of course I urge you now to all buy my book, if you don't already have it (laughter), and I am perfectly willing to sign it. Thank you very much.

(applause)

The above was delivered by Hans-Hermann Hoppe at the Mises Circle in Southern California, 2006, and was transcribed from the mp3 available at Mises.org.