The Problem of National Defense in a Free Society
Friedman, David
The Problem of National Defense in a Free Society David Friedman National defense has traditionally been regarded, even by believers in severely limited government, as a fundamental function of...
...An ABM fired at a missile a thousand miles from its target cannot distinguish between warheads aimed at those who have paid for defense and warheads aimed at those who haven't...
...Thus, an individual farmer may refuse to pay...
...It is all very well to fantasize about fighting the invader village by village, commune by commune or corporation by corporation, according to the dreamer's particular brand of anarchy...
...A serious invader would inform each unit that if it resisted, or failed to pay tribute, it would be destroyed with a nuclear weapon...
...The government has no market mechanism for measuring the value of the dam...
...Thus, one solution to the problem of national defense is the development for some related purpose of local defense organizations...
...A simple example is the control of a river whose flooding injures the land of many farmers...
...Hawaii, to take an extreme example, could, if necessary, be excluded from the nuclear umbrella covering the mainland...
...It would probably pay an annual fee instead of a lump sum in order to make sure the state stayed bought...
...There is no way that an entrepreneur proposing to build a dam can protect only those farmers who agree to pay for the dam...
...Is it a public good...
...And since government decisions are made on political grounds, the government may choose to ignore cost and value entirely...
...If it is much larger than the cost of the dam, the entrepreneur makes a profit...
...One form of this argument is the assertion that national defense is unnecessary in an anarchist society, since there is no nation to defend...
...They could use this windfall (which comes only from policies already written and thus represents only that small part of the benefit of defense which accrues in the near future to those already insured) to "endow" national defense...
...The rise in value of the land measures the total benefit from the dam...
...Such tax exemption would itself be a public good (defense, via bribery, from one's own state) for the community...
...This is the traditional problem of toe public good...
...The state, without control of local institutions, might find the cost of collecting taxes substantial, and might thus be tempted to raise money in the manner of the French monarchy-by selling tax exemptions...
...Once such organizations existed, hundreds of them could combine via unanimous contracts to defend areas of national or even continental size...
...There may be a. few fanners who refuse to sell, but as long as the entrepreneur owns most of the land, he receives most of the benefit...
...It is, therefore, in his interest to sign...
...This makes it difficult to sell national defense on the free market...
...There is no reason why national defense should not be partly financed by charitable contributions...
...These must be organizations permanently endowed for the purpose of providing defense...
...In our society, the usual solution is to use government force-taxation-to make those benefited (and others) pay for the dam...
...In all these ways, a national defense agency might raise enough money to finance national defense without taxation...
...Communities on the edges of the defended area, although necessarily protected from nuclear attack by any national defense system, could go to those individuals and corporations in such an area who had the most to gain from being defended (large landholders, insurance agencies and the like) and inform them that they would have to pay a price for defense...
...How does all this apply to national defense...
...It is a problem because if there are enough such farmers, who reason that it is in their self-interest not to contribute to construction of the dam, the dam will not be built, even though the combined value to all the farmers is more than the cost of building the dam...
...While national defense is primarily public good, there are parts of it which ca be sold separately to individuals or groups...
...The citizens of New York, having paid their share of defense costs, can hardly look with equanimity on the H-bombing of Philadelphia which has contributed not a penny...
...Historically ii has been...
...But, in the present worlds, small groups' cannot defend themselves...
...After the invader demonstrated that he was serious, the local citizenry would be eager to create the institutions, voluntary or otherwise, necessary to give the invader what he wanted...
...Can it be financed by some variant of one of the noncoercive methods I have discussed...
...in time of war people often donate money, labor and weapons, and purchase war bonds for more than their market value in order to help pay the cost of defense...
...Foreign states would probably treat a national defense agency as government with respect to such matters as passports and extradition treaties...
...A public good is an economic good which, by its nature, cannot be provided separately to each individual, but must be provided to the public as a whole...
...It could offer to exempt any community from taxation in exchange for either a capital sum or payment...
...Each farmer knows that, if he refuses to sign, the dam won't be built, since the contract has to be unanimous...
...Some contemporary anarchists argue that national defense can be provided or not provided for each individual, or at least each small group...
...The larger the difference between the value of the good and its price, on the other hand, the easier the entrepreneur's job...
...Another way to provide a public good without coercion is by temporarily converting it into a private good...
...The entrepreneur could do this by purchasing most of the land in the valley before telling anyone that he is thinking of building a dam...
...He can then build the dam and resell the land at a higher price, since the dam raises the land's value...
...Charities exist for the purpose of financing public goods...
...Since people living in the geographical area defended would be protected whether or not they were insured by it, it would be in their interest either not to be insured or to be insured by a different company, one which did not have to bear the burden of paying for defenses and could, therefore, charge lower rates...
...Such an insurance company, in order to pay the cost of defense, would have to charge rates higher than the real risk, assuming the existence of its defense system justified...
...There are some ways in which part of the cost might be paid...
...Paradoxically enough, a solution to this problem of developing institutions which provide defense without the state might be provided by the state itself...
...This is the problem, for example, with Morris and Linda Tannahill's idea of financing national defense through an insurance company, or companies, which would insure customers against injury by foreign states, and finance national defense out of the money saved by defending the customers...
...He can leave a generous margin for error by charging each farmer less than the dam is probably worth to him, and still raise enough money...
...There are also several market solutions to the problem of providing a public good...
...Even if defense is retaliatory, and even if the retaliatory system is secure enough to hold its fire until it knows whether its customers have been hit, the problem remains...
...It could get some income by selling passports, arranging to extradite criminals from foreign countries at the request of local protection agencies and similar enterprises...
...Can it be financed without coercion...
...Fortunately, since the cost of a satisfactory national defense is much less than its value, a solution may be imperfect and still be satisfactory...
...Not, at least, if the wind is blowing north...
...Suppose that over a period of time many or most communities developed such institutions...
...These organizations could then contract with each other to take over from the existing state the job of financing and providing national defense...
...The Problem of National Defense in a Free Society David Friedman National defense has traditionally been regarded, even by believers in severely limited government, as a fundamental function of government...
...It could be financed voluntarily by one of the ways of financing public goods which I have described...
...It would be in their interest to do so if such groups could defend themselves...
...Suppose that, over the next fifty years, private institutions gradually take over all governmental functions except defense...
...However much some libertarians may object to them on philosophical grounds, they currently collect billions of dollars a year...
...Such an endowment would not be sufficient to pay all the costs of national defense, unless it becomes far cheaper than it now is, but it might cover some of them...
...In addition, there would be some areas which a national defense agency would have the option of defending or not defending...
...One could imagine an alternate history in which, as military technology developed, such voluntary governments evolved, just as coercive governments evolved in our history...
...There would then exist a group of organizations, voluntarily funded (either by the interest on a capital endowment or by contractual agreements to pay on the part of members of the community) and charged with the task of "defending" their communities...
...Obviously, a system which depends on local agencies evolved for a different purpose, or a ramshackle system financed by charity, passport sales and threats to Hawaiian insurance companies, is economically very imperfect...
...For instance, existing insurance companies would receive a capital windfall at the time an adequate national protection system was first constructed, since outstanding policies which had been sold, at high rates, under high risk conditions, could be paid off under low risk conditions...
...Defense against nations, in the present state of military technology, is a public good...
...Thus, the members of the community might find it in their interest to set up an organization designed to pay off the state...
...national defense in a free society: tentative solutions The problem might be simplified by being subdivided...
...It is not obvious how...
...they cannot simply be local firms with an interest in the protection of their territory since such firms, having agreed to pay part of the cost of national defense, would be driven out of business by new competitors who had not...
...The trouble with this solution, aside from moral objections to the use of force, is that the dam may be produced even when its value is less than its cost...
...Groups much smaller than our present population might be able to create defense organizations and finance them voluntarily...
...While local "national defense" organizations must, therefore, be endowed, they might evolve in ways other than those I have described...
...So, pending major technological change, defense against nations must be provided on a large enough scale to support retaliatory, and perhaps also defensive, nuclear forces...
...There is thus no incentive for them to develop voluntary arrangements to finance defense...
...Since the collection costs of taxation are high, the value of tax exemption is greater than its cost...
...For instance, the entrepreneur might estimate how much the dam is worth to each farmer, draw up a contract obligating each farmer to pay that amount on condition that every other farmer agrees to pay his share, and circulate it...
...Thus, in practice, public dams are often built even when their return on capital, including all nonmonetary benefits assumed to result, is below the return on alternative investments...
...To understand why, one must understand the economic concept of a "public good," and the difficulties in financing a public good without coercion...
...So, national defense-defense against foreign aggression-must defend areas of national size, whether or not they contain nations...
...The larger the public for a given public good, the harder it is to successfully arrange such a unanimous contract...
...So is a system financed by coercion...
...The national defense insurance company would lose all its customers and go bankrupt, just as it would if it were simply selling national defense directly-to individual customers who would be defended whether or not they paid...
...Unfortunately, there will still be nations to defend against-unless we postpone the abolition of our government until anarchy is universal...
...It is thus a public good, and one with a very large public...
Vol. 4 • May 1971 • No. 6
