In an earlier column, I wrote about the greatness of Man, Economy, and State. I’d like to continue with a discussion of another great book of his, Power and Market. Actually, that book was intended to be part of MES, but owing to the insistence of one of the readers for the Volker Fund, which funded the publication of MES with Van Nostrand, it had to be removed from the book. Instead, only a truncated chapter was added to the manuscript of MES and the book was published in that form.
Power and Market contains many vital insights that Rothbard had to omit from the truncated chapter of MES. Some of his topics were to hot for Frank S. Meyer, an ex-Communist turned ardent supporter of the Cold War, and other readers who lacked Murray’s intransigence. By the way, the edition of MES published by the Mises Institute included Power and Market, so if you read that, you will have MES as Murray wrote it.
Let’s start with the hottest topic of them all. Most supporters of the free market when Murray wrote MES supported a limited state, but Murray wanted to get rid of the state altogether. This was too much for the Cold Warriors. How can defense be provided on the market? But this is exactly what he favored: “A supply of defense services on the free market would mean maintaining the axiom of the free society, namely, that there be no use of physical force except in defense against those using force to invade person or property. This would imply the complete absence of a State apparatus or government; for the State, unlike all other persons and institutions in society, acquires its revenue, not by exchanges freely contracted, but by a system of unilateral coercion called ‘taxation.’ Defense in the free society (including such defense services to person and property as police protection and judicial findings) would therefore have to be supplied by people or firms who (a) gained their revenue voluntarily rather than by coercion and (b) did not—as the State does—arrogate to themselves a compulsory monopoly of police or judicial protection. Only such libertarian provision of defense service would be consonant with a free market and a free society. Thus, defense firms would have to be as freely competitive and as noncoercive against noninvaders as are all other suppliers of goods and services on the free market. Defense services, like all other services, would be marketable and marketable only.”
One common objection to Murray’s position, which you can still find today, is that there can’t be a free market until property rights are defined, and only the state can define them, Murray brushed this aside. There is a correct theory of property rights, and people who accept this theory can readily handle disputes through private agencies. “The laissez-faireists offer several objections to the idea of free-market defense. One objection holds that, since a free market of exchanges presupposes a system of property rights, therefore the State is needed to define and allocate the structure of such rights. But we have seen that the principles of a free society do imply a very definite theory of property rights, namely, self-ownership and the ownership of natural resources found and transformed by one’s labor. Therefore, no State or similar agency contrary to the market is needed to define or allocate property rights. This can and will be done by the use of reason and through market processes themselves; any other allocation or definition would be completely arbitrary and contrary to the principles of the free society.”
Probably the most common objection to anarcho-capitalism is that an outlaw agency could arise and turn the free market into rule by the mafia. Rothbard turns the table on this. He shows that it is the idea of a limited state that is a Utopian pipedream, because any constitutional limits on the government had to be interpreted by the Supreme Court, which was not an independent power but itself part of the government. The brilliant John C. Calhoun also made this point. It is precisely a system of private agencies that can best deal with outlaw agencies, just because the agencies are independent from one another. Murray’s analysis is here: “Another common objection to the workability of free-market defense wonders: May not one or more of the defense agencies turn its coercive power to criminal uses? In short, may not a private police agency use its force to aggress against others, or may not a private court collude to make fraudulent decisions and thus aggress against its subscribers and victims? It is very generally assumed that those who postulate a stateless society are also naive enough to believe that, in such a society, all men would be “good,” and no one would wish to aggress against his neighbor. There is no need to assume any such magical or miraculous change in human nature. Of course, some of the private defense agencies will become criminal, just as some people become criminal now. But the point is that in a stateless society there would be no regular, legalized channel for crime and aggression, no government apparatus the control of which provides a secure monopoly for invasion of person and property. When a State exists, there does exist such a built-in channel, namely, the coercive taxation power, and the compulsory monopoly of forcible protection. In the purely free-market society, a would-be criminal police or judiciary would find it very difficult to take power, since there would be no organized State apparatus to seize and use as the instrumentality of command. To create such an instrumentality de novo is very difficult, and, indeed, almost impossible; historically, it took State rulers centuries to establish a functioning State apparatus. Furthermore, the purely free-market, stateless society would contain within itself a system of built-in ‘checks and balances’ that would make it almost impossible for such organized crime to succeed. There has been much talk about ‘checks and balances’ in the American system, but these can scarcely be considered checks at all, since every one of these institutions is an agency of the central government and eventually of the ruling party of that government. The checks and balances in the stateless society consist precisely in the free market, i.e., the existence of freely competitive police and judicial agencies that could quickly be mobilized to put down any outlaw agency.”
This brings us to another insight that Rothbard found in Calhoun, namely that taxation divides people into classes or castes, the taxpayers and the tax-consumers. People who get more benefits from the state than they pay in taxes don’t really pay taxes at all. For example, if you work for the government, you get a salary. Any “taxes” that you pay are actually deductions from this salary: “It has become fashionable to assert that “Conservatives” like John C. Calhoun ‘anticipated’ the Marxian doctrine of class exploitation. But the Marxian doctrine holds, erroneously, that there are ‘classes’ on the free market whose interests clash and conflict. Calhoun’s insight was almost the reverse. Calhoun saw that it was the intervention of the State that in itself created the ‘classes”’ and the conflict. He particularly perceived this in the case of the binary intervention of taxes. For he saw that the proceeds of taxes are used and spent, and that some people in the community must be net payers of tax funds, while the others are net recipients. Calhoun defined the latter as the ‘ruling class’ of the exploiters, and the former as the ‘ruled’ or exploited, and the distinction is quite a cogent one. Calhoun set forth his analysis brilliantly: ‘Few, comparatively, as they are, the agents and employees of the government constitute that portion of the community who are the exclusive recipients of the proceeds of the taxes. Whatever amount is taken from the community in the form of taxes, if not lost, goes to them in the shape of expenditures or disbursements. The two—disbursement and taxation— constitute the fiscal action of the government. They are correlatives. What the one takes from the community under the name of taxes is transferred to the portion of the community who are the recipients under that of disbursements. But as the 
recipients constitute only a portion of the community, it follows, taking the two parts of the fiscal process together, that its action must be unequal between the payers of the taxes and the recipients of their proceeds. Nor can it be otherwise; unless what is collected from each individual in the shape of taxes shall be returned to him in that of disbursements, which would make the process nugatory and absurd. . . . Such being the case, it must necessarily follow that Such being the case, it must necessarily follow that some one portion of the community must pay in taxes more than it receives back in disbursements, while another receives in disbursements more than it pays in taxes. It is, then, manifest, taking the whole process together, that taxes must be, in effect, bounties to that portion of the community which receives more in disbursements than it pays in taxes, while to the other which pays in taxes more than it receives in disbursements they are taxes in reality—burdens instead of bounties. This consequence is unavoidable. It results from the nature of the process, be the taxes ever so equally laid. . . . The necessary result, then, of the unequal fiscal action of the government is to divide the community into two great classes: one consisting of those who, in reality, pay the taxes and, of course, bear exclusively the burden of supporting the government; and the other, of those who are the recipients of their proceeds through disbursements, and who are, in fact, supported by the government; or, in fewer words, to divide it into tax-payers and tax-consumers. But the effect of this is to place them in antagonistic relations in reference to the fiscal action of the government and the entire course of policy therewith connected. For the greater the taxes and disbursements, the greater the gain of the one and the loss of the other, and vice versa. . . .’ ‘Ruling’ and ‘ruled’ apply also to the forms of government intervention, but Calhoun was quite right in focusing on taxes and fiscal policy as the keystone, for it is taxes that supply the resources and payment for the State in performing its myriad other acts of intervention.”
Let’s do everything we can to encourage people to read Power and Market and to learn how Rothbard pulverizes all defenders of the State!
