The Market for Liberty - Ch. 11

Warring Defense Agencies
and Organized Crime

Chapter 11 of The Market for Liberty

by Morris & Linda Tannehill (1970)

Some opponents of a laissez-faire society have contended that, because a governmentless society would have no single, society-wide institution able to legitimately wield superior force to prevent aggression, a state of gang warfare between defense agencies would arise.

Then (as they argue), brute force, rather than justice, would prevail and society would collapse in internecine conflict. This contention assumes that private defense service entrepreneurs would find it to their advantage, at least in some circumstances, to use coercive, rather than market, means to achieve their ends.

There is a further, unstated assumption that governmental officials would not only prevent coercion but would themselves consistently refrain from initiating force (or that the force they initiated would be somehow preferable to the chaos it is feared would result from an unhampered market).

The second of these assumptions is obviously groundless, since (as was shown in Chapter 4) government is a coercive monopoly which must initiate force in order to survive, and which cannot be kept limited. But what of the first assumption? Would a free market system of value-protection lead to gang warfare between the competing defense companies?

The “gang warfare” objection has been raised in regard to theories advocating a system of competing governments. When applied to any type of governments, the objection is a valid one. A government, being a coercive monopoly, is always in the position of initiating force simply by the fact of its existence, so it is not surprising that conflicts between governments frequently take the form of war. Since a government is a coercive monopoly, the notion of more than one government occupying the same area at the same time is ridiculous. But a laissez-faire society would involve, not governments, but private businesses operating in a free market.

All actions have specific consequences, and the nature of these consequences is determined by the nature of the action and by the context in which it takes place. What would be the consequences for a free-market defense company which committed an act of aggression in a laissez-faire society?

Suppose, for example, that the Old Reliable Defense Company, acting on behalf of a client who had been robbed of his wallet, sent its agents to break into and search every house in the client’s neighborhood. Suppose further that the agents shot the first man who offered resistance, taking his resistance as proof of guilt.

The most immediate consequence of the aggression is that the defense company either does or does not realize its objective (in this case, the return of the wallet, together with damages), depending on the circumstances and the amount of counter-force it meets with. But this is only the first of several important consequences springing directly from the aggression.

Not only has Old Reliable’s action put it in the precarious position of being a target of retaliatory force, it has also made the company the subject of severe business ostracism. All honest and productive individuals and businesses will immediately dissociate themselves from Old Reliable, because they will fear that any disagreement which may arise in their business dealings with it may turn its aggressive force against them. Further, they will realize that, even if they manage to remain on good terms with Old Reliable, they are in danger of becoming accidental casualties when retaliatory force is exercised by some indignant victim of Old Reliable’s aggressions.

But there is an even stronger reason which will persuade Old Reliable’s customers and business associates to quickly sever all relations with it. In a laissez-faire society, as has been pointed out, a good reputation is the most valuable asset any business or individual can have. In a free society, a man with a bad reputation would have a hard time getting customers, business associates, or credit and insurance at rates he could afford. Knowing this, no one would wish to risk his personal reputation or the business reputation of his firm by having any dealings with a known aggressor.

Insurance companies, a very important sector of any totally free economy, would have a special incentive to dissociate themselves from any aggressor and, in addition, to bring all their considerable business influence to bear against him. Aggressive violence causes value loss, and the insurance industry would suffer the major cost in most such value losses. An unrestrained aggressor is a walking liability, and no insurance company, however remotely removed from his original aggression, would wish to sustain the risk that he might aggress against one of its own clients next. Besides, aggressors and those who associate with them are more likely to be involved in situations of violence and are, thus, bad insurance risks. An insurance company would probably refuse coverage to such people out of a foresighted desire to minimize any future losses which their aggressions might cause. But even if the company were not motivated by such foresight, it would still be forced to rate their premiums up drastically or cancel their coverage altogether in order to avoid carrying the extra risk involved in their inclination to violence. In a competitive economy, no insurance company could afford to continue covering aggressors and those who had dealings with aggressors and simply pass the cost on to its honest customers; it would soon lose these customers to more reputable firms which could afford to charge less for their insurance coverage.

What would loss of insurance coverage mean in a free economy? Even if the Old Reliable Defense Company (or any other business or individual) could generate enough force to protect itself against any aggressive or retaliatory force brought against it by any factor or combination of factors, it would still have to go completely without several economic necessities. It could not purchase insurance protection against auto accidents, natural disasters, or contractual disputes. It would have no protection against damage suits resulting from accidents occurring on its property. It is very possible that Old Reliable would even have to do without the services of a fire extinguishing company, since such companies are natural outgrowths of the fire insurance business.

In addition to the terrific penalties imposed by the business ostracism which would naturally follow its aggressive act, Old Reliable would have trouble with its employees. Government employees are legally protected from suffering any personal consequences as a result of all but the most blatant of the aggressive acts which they perpetrate “in the line of duty.” Such functionaries as police officials, judges, and Internal Revenue and narcotics agents can initiate force with immunity simply by taking protection under such cliches as “I don’t write the law; I just enforce it,” or “That’s a matter for a jury to decide,” or “This statute was passed by the duly elected representatives of the people.” But employees of a free-market defense company would have no such legal immunity from retaliatory force; they would have to assume responsibility for their own actions. If a defense service agent carried out an order which involved the intentional initiation of force, both the agent and the entrepreneur or manager who gave him the order, as well as any other employees knowledge-ably involved, would be liable for any damages caused. Since he could not take refuge in “the system,” no honest defense service employee would carry out an order which involved the initiation of force (nor would an honest employer give such an order or sanction such action on the part of his employee). Thus, if Old Reliable managed to keep any employees at all, or to hire any new ones to replace those who had left, it would have to settle for people who were either terribly stupid or desperate enough to believe they had nothing to lose by being associated with aggression - in other words, simpletons and hoodlums.

In a laissez-faire society, a defense company which committed aggression, unless it acted speedily to rectify the injustices, would be left with no customers, associates, or employees except for undesirables. This raises the question of whether the criminal element in a laissez-faire society would, or even could, support their own “Mafia” defense company for the purpose of defending them against the retaliatory force of their victims. Only a man who was willing to be openly identified as an aggressor would buy the services of such a “Mafia” defense agency, since the nature of the activities and clients of such a defense agency could not be kept hidden. This open aggressor would have to support himself entirely by aggression, because no honest man would take the chance of having business dealings with him. Furthermore, he would have to be existing very well financially, since the cost of protecting a man continually involved in acts of violence would be extremely high.

It is reasonable to conclude, therefore, that the only clients of such a “Mafia” defense company would be highly successful, big time, open aggressors. Since an aggressor could hardly hope to obtain that much money all by himself, the existence of such men presupposes the existence of a fairly extensive, well organized network of lesser hoodlums working for the “big operators.” In other words, organized criminal gangs would be required to provide sufficient support for a “Mafia” defense company.

Although such an organized criminal gang may enter into many fields, organized crime finds its basic support in black market activities. A black market is any area of the market which is legally prohibited. If left unprohibited, it would be an area of trade involving peaceful, willing exchanges between sellers and buyers. But when government initiates force by forbidding this area of trade to honest men, it throws it open to men who are willing to take the risk of violating bureaucratic dictates and the statutory laws of the politicians. The violence and fraud associated with any black market do not spring from the nature of the good or service being sold; they are a direct result of the fact that entrepreneurs have been legally forbidden to deal in this area of the market, leaving it open to men who dare to ignore prohibitions and who are willing to resort to violence in order to do business without getting caught. Unless prohibited, every market activity is operated on the basis of willing exchange, without the initiation of force, because this is the only way a business can be operated successfully, as force is a nonproductive expenditure of energy.

An excellent example of a black market occurred during the Prohibition era of the 1920s. When government prohibited the manufacture and sale of liquor, an area of the market was arbitrarily closed to anyone who wished to remain law-abiding. Since there was still a market demand for liquor, hosts of criminals were attracted and created to fill the vacuum. Numerous gangs, including the Mafia, were founded and/or grew into organizations of immense power on the basis of the black market afforded by the Prohibition Amendment of the U. S. Constitution. Many of these organized criminal gangs are still with us; although they lost a great deal of their base with the repeal of Prohibition, they were able to survive by shifting the major part of their activities to other governmentally forbidden areas, such as gambling and prostitution. (It is interesting to note that the two organizations which fought hardest against the repeal of Prohibition were the Women’s Christian Temperance Union and the Mafia!)

There is a compelling reason why organized crime must base its support in black market activities. Wealth does not exist in nature but must be created. The only means of creating wealth is value-production and free exchange - the manufacture and trade of some desired good or service. One may obtain wealth directly, by productive work, or one may obtain it indirectly, by looting it from a producer, but the wealth must be created by production in the first place in order to exist at all. The looter is a parasite who will not create his own wealth and its consequent power but is dependent on some producer to furnish it. This means that looting cannot be a profitable business in the long run (to the extent that producers are not disarmed by a false ideology - such as pacifism - or by being legally prohibited from acting in their own defense). Producers are the ones who hold the source of wealth and power, and in any long-range contest between looters and non-disarmed producers the weight of wealth and power must be on the side of the producers.

This is the reason that an organized hoodlum gang cannot support its large size and relatively complex structure by acts of aggression alone; the risk inevitably outweighs the profit (and this would be particularly true in a society where value-protection was a service sold in a competitive, free market). Such a gang can only support itself by obtaining its wealth directly, through production and trade in some black market. Thus, organized crime depends for its existence on black markets … which are the result of government prohibitions. Without government-caused black markets, Criminals would have to operate singly or in small groups because they would have no area of production and trade to furnish support for large and complex organizations. So it is clear that the criminal element in a laissez-faire society couldn’t possibly support a “Mafia” defense company.

It is also worth noting that much of the success of organized crime in our present society is due to the alliances which crime bosses are able to make with government officials On nearly all levels. From the $50 pay-off to the local cop, clear up to the $10,000 contribution to the senator’s campaign fund, organized crime regularly protects itself by buying off governmental opposition. In a laissez-faire society, aggressors would not only be scattered, weak, and unorganized, they would find it next to impossible to buy off free-market protection and arbitration agencies. The customers of a defense company don’t have to keep patronizing it if they find out that some of its employees have been accepting payoffs from aggressors. They are free to do what citizens can never do - find some other agency to protect them. A free-market agency, unlike a government, couldn’t afford to have underworld connections, even with the small and unimportant “underworld” of a free society. When the news media revealed its shady dealings, its customers would all desert it, and the aggressors wouldn’t be able to keep it in business … for the simple reason that the criminal element in a laissez-faire society would be too small and weak to support a “Mafia” defense company.

But even though a “Mafia” defense company could not exist in a free-market society, wouldn’t it be possible for some respectable defense agency to attain a position of monopoly and then begin exercising its powers in a tyrannical manner? Of course there is some possibility that any social structure can be subverted - anything which some men can build, other men can find a way to destroy. What obstacles would a would-be tyrant (or group of tyrants) have to overcome in order to gain control of a free society?

First, the would-be tyrant would have to gain control of the defense company he intended to use, and it would have to be one which controlled a fairly strong army or had the means to build one. Even if he inherited the business lock, stock, and bankroll, he would still not control it in the same way that a government controls its bureaucrats and armies, because he would have no way of guaranteeing his employees immunity from retaliation if they committed coercive acts for him. Nor would he be able to hold his employees (as a government can with its conscript soldiers) if they objected to his orders or feared to carry them out.

But if this would-be tyrant were clever and subtle enough either to gain the loyalty of his employees or to keep them from realizing what he was about, he would still have only begun his task. In order to have sufficient power to carry out his schemes, he would have to gain monopoly or near-monopoly status. He could only do this by becoming the most efficient and excellent entrepreneur in his field; and he would have to continue this excellence, even after he had gained monopoly status, to prevent other large businesses from diversifying into his field to reap the benefits of higher profit margins. This means that our would-be tyrant couldn’t charge his customers high prices in order to amass a fortune to buy weapons and hire soldiers to further his schemes of conquest.

In fact, the would-be tyrant’s customers would probably be more of an obstacle to his ambitions than his employees would. He couldn’t extract taxes from them, as a government does, and, at least until he reached the stage of full power, he couldn’t even force them to buy his service and support his company at all. A market relationship is a free relationship, and if a customer doesn’t like a company’s service or mistrusts its goals, he is free to take his business elsewhere, or to start his own competitive company, or to do without the service altogether and just provide for himself. Furthermore, customers aren’t imbued with the citizens’ spirit of patriotic fervor and obedience and are, thus, much harder to lure into foolish collectivistic endeavors (such as “national unity”). Free men aren’t in the habit of leaping like fools and sheep to “defend the Flag” or to “sacrifice for the Cause.” In these vitally important respects, the free-market system differs fundamentally and completely from a government system of any sort.

The would-be tyrant might try to build his forces in complete secrecy until he was ready to make his coup, but he would find this far from easy. Imagine amassing the cash to buy guns, tanks, airplanes, ships, missiles, and all the other paraphernalia of modern warfare. Imagine finding such items and making deals to purchase them or have them manufactured. Imagine hiring and equipping a large force of soldiers and training them for months. Then imagine doing all this in complete secrecy while alert members of the news media were continually nosing around for a big story! If you can imagine such a thing, your ability at fantasizing is remarkable, indeed.

The fear of a tyrant is a very real one, and, in the light of history, it is well justified. But, as can be seen from the foregoing examination, it applies to a governmentally run society rather than to a free society. The objection that a tyrant might take over is actually a devastating argument against government.


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