Anarcho-capitalism is a libertarian design for a stateless society in which security, law, and dispute resolution would be provided primarily by for-profit companies. There are two reasons why researchers are interested in this form of social order: moral and economic. The moral argument is based on the claim that the state is an inherently unethical institution. Every state (including the minimal state) violates the rights of individuals because it claims a monopoly on the use of violence and sustains itself with money taken from citizens by force in the form of taxes.
The economic argument, in turn, points to the inefficiency of the state due to the state’s monopolistic position. Not being disciplined by the mechanism of profit and loss, the state not only inefficiently provides the goods that citizens desire, but also forces them to finance things they do not want at all (an example of this is US military action outside its borders). The lack of incentives resulting from the absence of competition is reinforced by the lack of a price system, which prevents consumers from effectively communicating their preferences. Therefore, anarcho-capitalists believe that the abolition of the state and its replacement with private institutions would not only be just, but would also allow for a more effective means of ensuring social order.
Proponents of anarcho-capitalism have presented a number of accounts of what exactly an anarcho-capitalist order would look like. Among the most important theorists dealing with this topic are Murray Rothbard, Linda and Morris Tannehill, David Friedman, and Hans-Hermann Hoppe. Their descriptions differ slightly (which is to be expected, as we do not know exactly which solutions would prove most effective), but we can identify the basic elements that appear in most libertarian designs for a stateless society.
Many private defense agencies (PDAs) would operate in the security market, competing for customers by offering low prices and high-quality services. In exchange for a regular fee, the agencies would be responsible for ensuring their customers’ safety. They would also act as insurance companies, paying compensation to customers whose rights have been violated, and, as some speculate, they would represent their customers in legal disputes. As proponents of anarcho-capitalism point out, in the event of conflicts or disputes between customers, the agencies (or one agency, if the dispute concerned customers of a single agency) would negotiate or refer the matter to private courts for resolution. These courts would also compete for customers by striving to offer the cheapest, most effective, and most reliable services. As different agencies would constantly have to resolve conflicts between their customers, they would enter into agreements in advance to facilitate relations between themselves. In an anarcho-capitalist order, law would have three sources. First, as every individual would purchase insurance against aggression from their protective agency, the libertarian principle of non-aggression would spontaneously emerge as the most fundamental rule of law. Second, judicial decisions would interpret when individual rights have been violated. These decisions would be highly repetitive, and over time, a consistent body of law would emerge that would be open to change and evolution, likely varying from place to place. The third source of law would be voluntary contracts between individuals, forming the basis of applicable law in various private areas. For instance, a housing estate owner could establish their own legal rules and only rent apartments to those who agree to abide by them.
The fundamental economic principle underlying anarcho-capitalism is the concept of self-enforcing contracts. Interactions between PDAs, between PDAs and clients, and between clients (through PDAs) would be repetitive. The profit from a one-time violation would disrupt the long-term benefits of cooperation. Therefore, even though there is no powerful third party in the system with a monopoly on the use of violence to enforce contracts and protect rights (i.e., the state), people and PDAs will honor their contracts and respect the rights of others to avoid disrupting long-term cooperative relationships. This self-enforcing system would be further strengthened by a reputation mechanism whereby a company that violates a customer’s rights would lose not only the aggrieved customer, but also other customers, including future ones, and by a signaling mechanism through which honest parties could proactively demonstrate their integrity, thus facilitating the formation of profitable relationships.
In addition, supporters of anarcho-capitalism rely not only on economic theories, but also draw on a wide range of empirical data that seem to bolster the thesis that anarcho-capitalism is a feasible socio-political system. On the one hand, they point out that some of the private methods of producing social order are already utilized today (just to mention private arbitration to settle disputes between companies), and on the other hand, they point to historical examples of situations where—in the absence of the state—various societies effectively produced social order.
Although anarcho-capitalist theorists rely on sound economic theories, and researchers working within the tradition of analytical anarchism have presented many examples of how social order can emerge without the participation of the state, the proposal to completely abolish the state is still a highly controversial idea. It is therefore not surprising that the anarcho-capitalist project has been met with numerous criticisms. It is worth noting that many of these criticisms have been raised by libertarians or people who strongly believe in the effectiveness of the free market, which adds weight to these doubts, indicating that they are not merely the product of statist prejudices. Among the important critics of anarcho-capitalism are Ayn Rand, James Buchanan, Tyler Cowen, Daniel Sutter, and Randall Holcombe. Let us look at the nine most important objections that have been put forth against the feasibility of anarcho-capitalism:
- Private defense agencies will not be able/willing to collaborate with each other. The most obvious objection. It suggests that PDAs would be unable to collaborate with each other and that bloody conflicts would continue to break out between them.
- Agencies will abuse their power over individuals. Critics point out that agencies will have enormous advantage over individuals, which raises the risk that they will: (a) use this advantage to try to dominate their own clients; (b) try to use violence to prevent clients from leaving; (c) try to attack clients of other companies, as well as people who are not insured by any company.
- Agencies will form a cartel that will inflate prices and lower the quality of services, and could potentially transform into a state. This argument is particularly relevant because the security production market seems to differ significantly from typical markets. In order to function effectively, this market requires cooperation between PDAs, which creates fertile ground for cartelization and provides better opportunities to exclude new players that threaten the cartel.
- The agency or agencies may gain a monopoly in a given area and transform into a state. This could happen in three ways. First, an agency could defeat other agencies through non-economic, direct combat. Second, an agency could defeat other agencies economically due to possible economies of scale associated with the production of security. Third, although companies would initially compete with each other over a larger territory, natural market processes (spatial economies of scale) would result in individual companies having the majority of their customers in separate areas after a certain period of time.
- Law in anarcho-capitalism will not be libertarian. The more radical version of this objection asserts that no stable law would emerge in such a system. A less radical version suggests that law would stabilize in the form of some kind of local equilibria, but would not necessarily be libertarian in character. This problem can be dubbed the paradox of libertarian anarchy: libertarians want to abolish the only institution that seems capable of enforcing libertarian ethics in a given area, as they consider it to be incompatible with libertarian ethics.
- An anarcho-capitalist society will not be able to finance military defense and will therefore be vulnerable to conquest by neighboring states. An anarcho-capitalist society must be able to defend itself against external threats, which requires financing an army capable of fending off, or better yet, deterring, its enemies. However, financing such an army is threatened by the free rider effect—individuals may shirk contributing, hoping that others will finance it.
- An anarcho-capitalist society would struggle to fund essential public goods. Beyond defense, public goods like roads, environmental protection, epidemic control, and a stable monetary system also require financing. If these goods were underprovided, it could reduce the system’s economic efficiency to such an extent that it would become unstable.
- Power in the hands of the richest, a difficult situation for the poor. The fact that anarcho-capitalism distributes political goods through the market may be problematic for two reasons. First, those who cannot afford to pay for the services of companies providing security, law, and dispute resolution could be deprived of these goods. Second, it could be speculated that, in an anarcho-capitalist society, the wealthy could influence the legal and judicial systems to serve their own interests.
- Anarcho-capitalism presupposes the existence of a free market and an effective legal system. Critics point out that the market mechanisms invoked by anarcho-capitalists to explain how anarcho-capitalism would deal with various problems currently exist (and can only function) within the legal framework created by the state. If there is no state, there will be no legal framework ensuring market operation, and therefore market rules will not apply.
It appears that critics have presented compelling arguments that challenge the feasibility of anarcho-capitalism. However, its supporters have also not remained idle, attempting to refute all these doubts. This is one of the most important debates within libertarian philosophy. In the following articles, I will provide readers with a more comprehensive overview of the discussions surrounding individual doubts.
