Conventionally, the state is defined as an agency with two unique characteristics. First, it is a compulsory territorial monopolist of ultimate decision-making (jurisdiction). That is, it is the ultimate arbiter in every case of conflict, including conflicts involving itself. Second, the state is a territorial monopolist of taxation. That is, it is an agency that unilaterally fixes the price citizens must pay for its provision of law and order.

Among the most popular and consequential beliefs of our age is the belief in collective security. Nothing less significant than the legitimacy of the modern state rests on this belief.

I will demonstrate that the idea of collective security is a myth that provides no justification for the modern state, and that all security is and must be private. Yet, before coming to the conclusion let me begin with the problem. First, I will present a two-step reconstruction of the myth of collective security, and at each step raise a few theoretical concerns.

I. The Problem of Social Order

Alone on his island, Robinson Crusoe can do whatever he pleases. For him, the question concerning rules of orderly human conduct—social cooperation—simply does not arise. This question can only arise once a second person, Friday, arrives on the island. Yet even then, the question remains largely irrelevant so long as no scarcity exists. Suppose the island is the Garden of Eden. All external goods are available in superabundance. They are “free goods,” just as the air that we breathe is normally a “free” good.

Franz Čuhel occupies an honored place in the history of economic thought and of the “Viennese” or “Austrian” School of economics in particular. In his book Zur Lehre von den Bedürfnissen (1907), Čuhel presented for the first time a strictly ordinal interpretation of marginal utility and thus contributed to a systematic advance of pure economic theory. Since this lecture is named in Čuhel’s honor, I felt it appropriate that I, too, should discuss here a purely theoretical problem of economics.

Let me begin with a brief description of what a capitalist-entrepreneur does, and then explain how the job of the capitalist-entrepreneur is changed under statist conditions.

What the capitalist does is this: He saves (or borrows saved funds), hires labor, buys or rents capital goods and land, and he buys raw materials. Then he proceeds to produce his product or service, whatever it may be, and he hopes that he will make a profit.

Imagine you are in command of the state, defined as an institution that possesses a territorial monopoly of ultimate decision-making in every case of conflict, including conflicts involving the state and its agents itself, and, by implication, the right to tax, i.e., to unilaterally determine the price that your subjects must pay you to perform the task of ultimate decision-making.