Anarchy and Economies of Scale

0:00Before I get into the heart of my remarks, I just wanted to clarify that the title of the talk and your schedule had to do with economies of scale, whereas the title on my paper doesn't mention that, but that's because I realized when Mark asked me what the title would be, I told him the economies of scale, because that's what I originally wanted to work on, but then I realized as I started proceeding that The thing that I was going to use to try to solve or mitigate the alleged problem of economies of scale under anarcho-capitalist defense agencies was actually this neglected role of ideology and it had much wider implications and so that's why the titles are different. The other thing I want to say especially for those who may be listening to this and not seeing this presentation is apparently Chad is going to put on the, when you go to Mises.org So what's interesting if you're somebody who's a proponent of Rothbardian anarcho-capitalism is that actually there's a treatment of this in the literature which I was unaware of until Ed Stringham brought to my attention so I'd like to thank him publicly for doing that and there are in several fairly highly ranked journals there are actually people

1:20Treating Anarchy and so for those of you who are anarchists and you're going to be professional economists and you want to find some way to get published this is one route you might take and it's admittedly it's not a very popular topic and it's not I'm not saying it's easy to get published on anarchy but I found it's much easier than getting published on Eugen von Boehm-Bawerk's Capital Theory so it's depends it's a relative claim. So just to summarize some of the major things for example the most highly ranked paper or The first journal that I saw was in the journal Political Economy, the one by Hirschleifer, who's a fairly known economist. And there, he doesn't directly talk about Murray Rothbard or anything like that, but he does mention spontaneous order of the type Hayek talks about, and says anarchy theoretically could be a spontaneous order, and then he sets up a mathematical general equilibrium model and finds the parameter values for which anarchy is stable or for which it breaks down into pure chaos,

2:16or I think he calls it breaks up into something of a state all right so that's just one example and so just so you know that's where I'm coming from with this paper is I'm trying to get my foot in the door to the big mainstream journals that way and we'll see we'll see how that turns out but later on I'll try to give you more justification because as I was working on this some of the fellows were giving me the evil eye last week about seeing the deltas and gammas on my paper so I will try to come back and justify why is it that an Austrian economist is having a mathematical model in this paper but we can put that aside till the very end I will come back to the the model in the paper but right now let's just talk about the principles the basic ideas so a very common claim that people will make and that's what I tried to summarize in the second section of

3:06the paper is that anarchy and when I say anarchy I mean of the type that Murray Murray Rothbard advocated. So there's of course left-wing anarchists and they mean something different by anarchy. They mean the absence of private property. Of course, I'm not going to keep qualifying myself, but from now on when I'm talking about anarchy, I mean an absence of a state where private property still reigns and people have private legal systems and privately produced police and judicial services. So that's what I mean by anarchy. I'm just going to use that as a shorthand for that more complicated concept. So the claim against that specific arrangement has been addressed. For example, Sutter in the Southern Economic Journal has a long piece.

3:54And I was, as I said before, Ed Stringham had alerted me to these things. I just figured the only place you could go to read about Rothbardian defense agencies would be the JLS or the QJ. And that's incorrect. There actually are other journals. Tyler Cullen has published in a philosophy and economics journal on this topic. So what I'm saying to you is don't assume that we here at the Mises Institute know these great ideas and no one else has even heard of them and there's no way to get published except in our journals. That's not necessarily true. So just keep that in mind. But anyway, back to the claim, they say amongst other things that It's wrong to critique the state provision of police and judicial services and then contrast that with an open market in those services.

4:41The way you, for example, would, as a Rothbardian, you might say, the state shouldn't produce television sets. That would obviously be silly. There'd be no link there to consumer satisfaction. There'd be no competition. They wouldn't be able to calculate costs correctly. And whereas if we contrast state provision of TV on the one hand with market produced television sets obviously hands down the market would do a better job and by the same token why wouldn't the market produce judicial rulings and police services much more effectively and equitably than the state would so a lot of people are going to say no the difference is the crucial thing that separates the police and judicial services from every other type of good and service is that in order to have market exchange in the first place you need to have a stable system of property rights you need to have that better rock foundation before you can then go ahead and exchange those rights in the marketplace and the claim is specifically for today's topic that it's in some sense unstable and that these even if there weren't initially open competitive market for enforcement of property rights where you had private companies that hired armed agents and they went out and enforced claims that that would somehow

5:58Now, either break down into pure chaos or it would turn into a de facto state that because of economies of scale in particular, you wouldn't have hundreds and hundreds of little mercenary groups that you could go and hire to protect your property from your neighbor that of course it just seems obvious that rather than having all these little groups of a hundred employees each, somebody would just buy out everybody, they would merge because it's better to have and that after a while, you're going to have this huge group of armed people who basically can tell everyone else what to do and that they also are the ones enforcing property rights and so the claim is at that point, what's the difference between that and what the government does and Randall Holcomb goes so far as to say that at least if we establish a new government, we're going to be able to do that.

6:57our own government preemptively, we can set up a constitution and have a bill of rights and things like that. Whereas if we just sit back in an initial state of anarcho-capitalism and wait for the inevitable outcome when either some outside conqueror or a homegrown agency that gets so big that no one can stop it takes over, maybe that situation is going to be far worse than the limited government we have now. So that's a very typical claim you see and I in the paper documented several examples of this. So that's what I'm trying to address with my paper, that common claim. Before I can give you my proposed solution to that, or the thing that I think would greatly mitigate that problem, I needed to go off on a tangent in the paper and talk about the definition of anarchy, because I think it's relevant in this discussion that before we can argue about the pros and cons of anarchy, we need to be clear on what it is.

7:53and specifically what worries me is in a lot of these papers the way they try to get a glimpse of what anarchy would look like if Rothbard's ideas came to fruition is they say well let's look at black markets let's look at the way mafia groups interact with each other and that they claim is a good sample of what the entire society would look like if the government didn't exist and so it's an understandable view and I've even seen some people who are pro-anarchy make that claim because they say things such as look mafia groups aren't always shooting at each other that they it's organized crime right that there are rules and that's one of the functions that the mafia actually performs is that when criminals have arguments with each other over turf or what-have-you they don't just go shoot each other they have to get permission from someone higher up and in particular you can't go kill a made man unless you get permission from

8:50from the crime bosses and so and that's a valid point and I think that should be pointed out to people who really have just a completely naive view of what organized criminal behavior is like but actually I think that gives too little credit to a spontaneous order of a free market society because let me just back up again the the view is look here are these criminal groups they go out and and they engage in gambling and they have loan sharking and they run prostitution rings and so forth and then if somebody is doing something they don't like and the guy's not protected, what do they do? They kill him and they dump his body in the river. They're doing all these things that are against what the state says the law is and then they don't even get punished for it because they've got a few policemen and judges on their payroll.

9:41So clearly these people aren't affected by the law that the state promulgates And so it seems as if that's the way people behave when they're not constrained by a police force. And so therefore, by extension, it seems if we just completely got rid of the police as these anarchists recommend, why wouldn't everybody behave the way these mobsters do? So that's the mentality. But I argue in the paper that that's, in my opinion, exactly backwards. That the reason the mobsters behave like that is precisely because of the presence of the government. that it's not random the industries that mafia groups infiltrate, they operate in precisely those markets where the state is most heavily involved, namely the prohibited markets or the heavily regulated ones. And so, of course, we don't have the time in this presentation to get into the specifics of why that's the case, but I'm assuming most of you are familiar with the standard economic arguments for why drug prohibition, for example, makes the drug market more violent and so on.

10:41And of course, even beyond the theory, just empirically, gangsters were involved in alcohol production during Prohibition. As soon as it was legalized, they didn't. It would be ridiculous now if you opened your paper and saw that employees of Budweiser had a drive-by shooting of employees of Coors or something. I mean, it just, it would be absurd. But yet, when you read that, oh, Al Capone had some of his men wipe out some other guys because they were on his turf, it's like, oh yeah, because they're mobsters and that's what they do. All right, so clearly the government is doing something and it has something to do with it. And just to, I think perhaps the best example is the infamous St. Valentine's Day massacre. And I'm relying on a summary that I read on the Internet, so I'm hoping, hopefully that this is correct.

11:30But in any event, the details that I hadn't known until I, beyond the fact that Elkhorn wiped out a bunch of his rivals on Valentine's Day, Apparently what specifically happened in at least one of these incidents is he sent four of his men to where he knew a rival gang, their members were running some black market operation, I don't remember what it was, he was gambling or something, and his men were dressed up as Chicago police officers and then they came in and said, this is a raid and they told the other gangsters men to put down your guns and line up on the wall and then when they all had their backs turned they just gunned them down and left. And so what's interesting about that, I think that just more than any other theoretical argument I can give you, proves that contrary to the assertions of many people in these articles that I cited in one section of my paper, where they point to, Jack Hirschleifer specifically points to Prohibition-era Chicago as an example of anarchistic behavior.

12:27And that, I think, just proves that, no, on the contrary, the biggest gang in any city is the government's police force. They are the biggest, strongest gang and they're the gang that the other gang members or the other gangs have to pay tribute to, literally. And if you think about it, why did it benefit Al Capone's men to dress up as police officers? Because then they could walk in there with their guns in plain view and say, drop your guns and turn around. And the other guy's men said, oh, OK, and they did that. Whereas if Capone's men had just walked in and not given their identity, the other guy's gangsters would have shot them or they would have said no. and they would have taken out some of them before they wiped them out because there were only four of Capone's men and there were more than four of the other guys so if you just push it and think through I mean it's obvious to you that when four police officers walk in and tell you to do something you don't start shooting that if you just think through what why is that the case it's not that they were afraid they were all going to die from those four individuals it's not that those police officers if they thought they were police officers were necessarily sharpshooters it was that if you kill a police officer you know life as you know it is over that

13:32No matter who you've got connections with, that if you kill a police officer, you're going to be in really big trouble because the police do not take kindly to someone killing one of their own, okay? So that's, again, just to show in terms of the pure power politics involved, despite the movie's portrayal sometimes of this idea that mobsters, nobody can touch them and that even the police can't get them and, oh, we're having such trouble pinning the charges on Al Capone and it's, oh, he's just above the law. Yes and no. He clearly, Al Capone, at the height of his power, could not go up in broad daylight in front of a police precinct to shoot somebody. He wouldn't be that stupid. There would just be too much political pressure behind that. If innocent people saw that happen and told their friends what they saw with their own eyes and the government did nothing, that would just be too unpopular.

14:21So it's very naive, I think, to assume that mobsters are above or beyond the reach of the law, that that's not really at all what's going on. And like I said, the more you analyze it, the more you realize the mob derives its strength from the government. And so just as when the government legalized the production and sale of alcohol, mobsters lost that market, so too I would argue that it's not merely just applying the principle, but also there's some theoretical reasons to believe this, that if the government legalized everything, including judicial services and police enforcement of judicial rulings, that The corruption and violence that we currently associate with those things would also virtually disappear. All right, so that's, again, I can't dwell too much on that, but I think it is relevant for obvious reasons to today's talk, that when people are talking about anarchy versus the state, it's not merely irrelevant to point to mobsters as examples of anarchy, but it's actually exactly wrong, that that's examples of,

15:23Look what happens when the government tries to use its guns to impose order on a certain area of society. Instead of getting rid of the problem, what happens is over time the people who survive end up being very violent and armed themselves. That's not really surprising when the government declares war on anything, the people are going to retaliate and whoever ends up surviving the onslaught is going to be armed. So it's to suppose that, or to to wonder, gee, why is it that the gambling market becomes violent or the alcohol market becomes violent when the government tries to use prisons and guns to stop that activity and to attack people who sell alcohol? To wonder why does that happen is sort of like saying, well, gee, why is it that when the government goes out and tries to destroy al-Qaeda, they strike back? Why do they do that? I don't understand.

16:09So it's really when the government declares war on something, of course, they're going to retaliate. Another quick example of that is the example that Sutter gives. So if you've read the paper, you'll know what I'm talking about. Just give a quick summary. So in Sutter's paper, he tries to model anarcho-capitalism. And it's a very simple approach where he has a few perturbations of the model. But in various stages, he first shows that suppose there's an individual who's a member of a Defense Agency and wants to leave and then the agency can decide do we let this customer go or do we compel them to stay and then Sutter puts in payoffs in the payoff matrix and for reasonable parameters of course the company would always tell the customer who wants to leave no you have to say and he's got a lot of game theory bells and whistles involved but all Sutter's really saying is if the only possible constraining factors are that the If the company can decide to keep money by having all of our armed men point at this one individual

17:18or letting him go of his own free will, then the profit maximizing thing to do is to point the guns at the person and take his money. So it's really simply as if you were modeling the fact that, oh gee, under anarchy, someone walking down the street would always take a $10 bill from a little five-year-old kid because the kid can't fight back and they're a strong adult. And so clearly under anarchy, little kids won't ever be able to hold on to their money. It's really just that simple if the only incentives you build in are the interaction between the two groups right then. And then he tries to make it more realistic and says, well, maybe there's an outside group, outside agency that the customer appeals to and so on. But in any event, for the point I was making a few minutes ago, what Sutter's trying to do is he wants to, after he does his model, he wants to say, well, what's the empirical relevance?

18:06And one of the examples he cites of this asymmetric power relationship, that's his big theme, is that there's asymmetric power relationships in anarchy and so therefore maybe the outcome won't be as rosy as Rothbard thinks it will. He points to the prostitution market and he says, look it, we all know from watching movies and just our general knowledge that it's not as if prostitutes can choose their pimps the way an actor right now can choose agents. Okay, that if a particular pimp is abusive and doesn't give the prostitute a very high percentage of her earnings, she can't just fire him and go hire somebody else because he might beat her to death or beat her severely and so on. And so Sutter is going to say, yep, there's an asymmetric power relationship and that's the kind of thing that's going to happen under anarchy. And the way he thinks, or the reason he thinks that that's indicative of it is, again, the obvious reason that, well, it's illegal right now.

18:57Now, the government says it's illegal to use violence to compel someone to be in a business relationship with you and people have the ostensible right to fire an agent, someone acting on their behalf and hire someone else and yet these pimps are flouting the law and no policeman is coming in to aid this woman and so that's the kind of thing that's going to happen. Isn't that anarchy in action? The government's not intervening to help her to enforce her rights and therefore look at the horrible outcome. But an alternative way of looking at that is to say that why are all these prostitutes continually going in the first place when they get into the business, why are they patronizing these pimps who they can see with their own eyes are beating up all these other prostitutes? And the answer is, well, because no reputable people are in that industry in the areas where it's illegal.

19:45And so it's really, I think, inaccurate or very short-sighted to just look at that relationship between the pimp and the prostitute and say, I don't see policemen rushing to aid them, them so that's what happens when there are no police rather I think you need to back up and look at the whole picture and say all these policemen are busy making arrests and putting people in jail and now the latest thing is to publish in the newspaper on the internet pictures of people who get caught in in the prostitution business and so anybody who's a decent human being is not going to go in and become a pimp that that's I mean just the very term that that's not you're gonna say yeah mom I decided I'm going to become a pimp with my life but But that's not a very reputable thing to do and that's precisely or largely because of the government prohibitions, right? So what I'm saying is I think it's wrong to look at that situation as what happens when the police are impotent,

20:38but rather to say no, to the extent that the police are effective in keeping people out of the prostitution market, specifically in the capacity of being a pimp, then you're going to get this result that the people who do end up People going into the market are people who are antisocial and don't care about legal penalties or the people who don't want to go to jail but aren't as afraid of jail as most people are and also they have a very high time preference that they would rather get the high monetary returns now even though they know there's a good chance they might get arrested at some point and have to do some time. So given the sampling bias it's no wonder that the people who end up being pimps act the way they do is not an outcome of anarchy, it's precisely the opposite. Okay, so now that we've clarified a little bit, and I probably should mention what do I think the appropriate definition of anarchy would be.

21:33The one that I would propose also has some admitted flaws, but I think at the very least what anarchy means, it shouldn't mean, as some of these writers seem to feel, the absence of a set of external rules. that I think that's what drives a lot of these writers is they have this idea that under a state there is this legal framework to which you must be, your behavior must conform and without that in anarchy, no, it's just incentives and only if institutions are such that it's in your interest to behave a certain way that's the only reason you'll do so. And I think that that's rather naive because that's really all any social institution can do Even when we have the government enforcing contracts, for example, and so that there are property rights and contract and the government enforces that, it doesn't automatically follow that everybody in society actually obeys those rules and never violates contracts.

22:29It depends on whether the government really will enforce that and if the threats that it makes are credible and sufficient to convince potential contract breakers not to do so. And that's exactly what would be true under any social system, in particular, anarcho-capitalism, that the potential contract violators would think, well, what's going to happen to me if I do violate the contract and let me judge the consequences? All right, so it's unhelpful and it stacks the deck against anarchy, I think, to define anarchy as some of these people did. In the paper, I give specific quotes to show I'm not attacking a straw man. But some of them say, under anarchy, there's no regulation from above. And the specific example, the way I tried to show that that definition or that attribute that's assigned to anarchy is unhelpful because looked at a certain way either everything's anarchy or nothing ever could be anarchy.

23:23If again if you use Hirschleifer's definition which was that anarchy is when people behave without regulation imposed from above. And so what do I mean? Well, let's take the United States. So I think clearly the current United States is not in a situation of anarchy, at least that term is to have any relevance that you could certainly define anarchy such that we have anarchy right now but then you would always have anarchy. So why would Herschleifer's definition mean that today today's US is not an anarchy or excuse me is an anarchy because if you say okay well where is the regulation from above come from you'd say well let's look at the government itself and who is who's in charge who's in charge of the Congress for example they're not in control the entire country they have to share their of Power with the executive branch and the Supreme Court.

24:13And then despite the rise in the executive power over the 20th century, it's still the case that even George Bush can't just do anything he wants. He can't just get up one day and say, I'm going to outlaw the Catholic Church, that he just couldn't do that. Or he can't say, I'm going to invade France. Some of his supporters would probably cheer, but most of them wouldn't, right? So as much as we use rhetoric to talk about how George Bush is so powerful and he is he can't just do anything he wants there are constraints on his power and so there is no single individual imposing this rule on everybody below him there is no hierarchy in which there's one person at the top that actually it's a it's a it's a nexus in which there's an interaction there and then ultimately you might say okay well maybe the government itself is in anarchy and I've even seen some people argue that they say that the governments of the world vis-a-vis each other are in a state of anarchy but

25:08The citizens below them certainly are not, because they're subject to the rule of the ruling class, the politicians. But even there, that's, especially when we consider the point I'm going to make in the next section of the paper about ideology, even formally speaking, no, George Bush, in an ultimate sense, is subject to the voters, as cynical as we may be about election fraud and so on. If in the last election, 10% of the people voted for Bush, he wouldn't be in power anymore. So there's a sense in which even the president or any ruler is subject to the people over whom he rules and even beyond that, they'll be on the formality and this is what the main point of my paper is that at any given time, regardless of the formal structure, the ruling class ultimately has to keep the population happy.

26:01Now we can quibble over how happy do they need to be, does it need to be active, fervent support, or does it just need to be a tacit consent in which the people are resigned to their fate, but clearly the politicians need to keep the public happy, they need to give the appearance, for example, that the war is going well, that Bush wants his ratings to be high, and if you just think about well why is that the case, if really he's the one imposing regulatory And so you realize it's a lot more complicated than that, that it's not that you can just arrange society in this hierarchy and that that's what you contrast with anarchy, all right? So anyway, I'm just mentioning as an aside that the typical treatment of anarchy, even among many anarchists, I think needs to be refined because you're going to end up in the problem where either everything is anarchy or nothing is anarchy.

26:56problem where either everything is anarchy or nothing is anarchy. And so again, what do I propose? For this paper, it doesn't really matter, but just to take a position myself, I think anarchy means that there are no political rulers and that in particular there's the absence of a state and then the state would be characterized as an institution that one possesses a monopoly on the rightful use of violence or can delegate that right to some from other subordinate group, and two, that it claims the right to extract its funding even from people who don't want to give it money. And so those are the two characteristics of a state. And so then how does a Rothbardian protection agency differ from that?

27:41The one hand, the agency does not enjoy a natural monopoly in the sense that in principle no one can compete with it, If through market forces, it happens to enjoy a practical monopoly, that's possible, but there could always be free entry into that industry and also it can't compel customers to give it money. That if at any time someone says, no, I want to fire you, I want to stop contributing, then that they had the right to do so. And that's, so we can argue about whether that would be a stable outcome and that's precisely the contention of the people that I'm talking about. They're going to say that's naive to assume that could last in that situation, but that at least is the ideal. Okay, so that would be anarchy because there would be not this institution of the state.

28:27Okay, moving on, what would prevent these nightmare scenarios that these people that I've quoted in the paper are worried about? There are plenty of things and I don't mean to belittle the other responses. So Rothbard in particular gives quite a few saying that look there are costs of combat and it's very naive to assume that all these hundreds of protection agencies are going to always be battling in the streets whenever their clients disagree with each other and that sort of thing. So and that's certainly true but I think even beyond that to me the most fundamental reason that we don't need to worry about these huge agencies taking over is that at least in a society like the U.S. They wouldn't enjoy popular support. The public would not approve of that.

29:16And in the long run, to be a dominant social force, you need to have the support of the public. And to make that, I think I just need to reiterate what I'm sure many of you have read, when Mises, following on David Hume, makes that argument with respect to governments, and that he says things such as, in the long run, there could be no such thing as an unpopular government, Because ultimately, no matter how totalitarian the regime, if the people are unhappy with it and want to have a different form of government, they can overthrow the existing regime. And that no amount of bullets and tanks is going to stop that. And again, this is depending on how strong you want to make the claim, we can argue about that in the Q&A if you want to. And I'm not wedded to any particular version of the claim except the general idea.

30:02for example it's it's one thing to say that if everybody dislikes the regime it's going to fall and versus another thing if everyone is unhappy with the regime and everybody knows that everyone else is unhappy then the regime is going to fall that's a crucial difference that in the game theory literature they would say it becomes common knowledge and so for example you could imagine a situation where there's an evil dictator and everybody does what he says because if he says do you go you know kill that dissident over there that person if he disobeys that he's just going to turn to some other soldier and say well kill him for disobeying my order and if that first soldier thinks the other soldiers going to obey then he's going to follow out the order to kill the dissident even though he personally thinks I support that dissident and this guy's a jerk but I don't want to get killed myself all right so you could have these self-sustained

30:58and sustaining self-fulfilling prophecies, where because everybody thinks everyone else is going to obey the evil dictator, everyone obeys him, even though everybody thinks he's an evil dictator. So you can imagine situations like that, and I think that accurately portrays how some of these regimes operate, but at the same time, as the fall of the Soviet Union demonstrated, I think that's more of a theoretical limiting point, and that in practice there has to be a huge bulk of people who they may disagree with the specific policies of the government they may think that oh yes Stalin took things too far but they still were communists they still thought market economy is horrible and exploits the poor and at least we have a classless society and yes mistakes were made and perhaps we shouldn't have liquidated so many but there's an issue of disagreeing with the particular choices that were made not with the system itself okay so like I said we can argue about How strong you want to make that claim, but I think people who are primarily concerned with raw physical might and that's sort of what you get the sense of when you read these critics of market anarchy that they are just focusing on well look at this protection agency has all these men with all these guns and you're just this individual consumer with your bank account and what are you supposed to do you're helpless in the face of this asymmetric power relationship that people who are just looking at who's got the most guns I think they greatly

32:24Overrate the Effectiveness of Physical Might. And it's the, just to give you an example that's somewhat related, when my wife and I were at the airport a few weeks ago, all these troops were coming through and they were either returning from duty or going out and they had their, they're obviously people in the armed forces. And whenever a certain number of them would go through, the entire airport, the Atlanta airport, would just stop and just start clapping. and unfortunately the time I was carrying a tray and so I didn't I didn't have to decide am I going to be a tough guy and hold my ground or am I going to you know pretend like I care but they but the things like that I think so someone who's concerned with just sheer power and physical might and whoever's got the whoever controls the tanks controls the society and that sort of mentality they would just think oh that's a harmless that doesn't that's irrelevant that's just the the public the sheep if you're anti-war

33:22or anti-US war currently going on, you would just think, oh yeah, those people are just clapping and that means nothing. Really what we've got to do is we've got to get to these neoconservative strides, we've got to get to Don Rumsfeld, these are the people in charge. But no, I think that sort of thing are all the stickers that say, support our truth that you see all over. What that stuff does is it convinces everybody else that, look, the country is behind this war. We support the troops, we support the president, and if you disagree, you're crazy. you go read lewrockwell.com or something you're just nuts that the the massive people support that because clearly in that airport what I could I didn't see anybody not clapping except my wife and she was I think had the baby too so you know people couldn't call her a traitor because she's holding a baby but then you know I had my tray wasn't supposed to do and so so you see there's no way

34:12that all those people really supported the war in Iraq or in Afghanistan and wherever those troops were going to be going. And yet there was just a social pressure that they felt compelled to do that. And so it's little things like that that I actually claim are far more significant than just again an analysis based on pure numbers and how many bullets and how many troops and so on would suggest. And it's, I can't spend too much time on this because I do want to get to the model and leave time for question and answer, but it's more even than just the typical claim People claim that you'd sometimes hear when people talk about why these war protesters are just horrible, that they're leading to more American deaths, right, you hear that a lot, that you shouldn't go protest a war and you're unpatriotic and you're just evil, because given that our troops are over there and committed, if you go out and go on a TV camera and say these things, what do you do is you inspire confidence in the enemy. And then Saddam would have folded perhaps, and Max Boot actually said this one time, he had an article called something like the bloody hands of war protesters.

35:15The reason we had to go to war in Iraq wasn't because of George Bush or neoconservatives, it was because of the people who were protesting the war, because they made Saddam not give up his weapons of mass destruction, and because it gave him hope that, oh, maybe they're bluffing. Now, I don't know how Max Bu would tweak that now, since apparently Saddam didn't have any weapons to surrender, but that was the claim. And you hear, especially with reference to Vietnam, that the reason Jane Fonda was so evil and so on is because Because of her actions she made the communists, she gave them hope and they just kept hanging on because they knew if we just hang on a few more years the Americans are going to leave. And so I think that's true, the analysis is correct insofar as it goes, but it begs the question because why is it that if the American public is against the war that means that the communists

36:14The American troops in North Vietnam just need to hang out a little bit more and the troops are going to get pulled home. Because it's not as if the American public are throwing bombs over the water to them. It's the American troops in Vietnam that are bombing their cities and so on. So somebody who's just concerned with real politique might think, I don't care what these American citizens think. What I care about is what do we need to do in order to get the American soldiers to mutiny? And that's the only way we're going to break their back or convince their commanders to pull out. What I'm saying is, no, they don't need to even do that so much. What they really need to do is get, it would be sufficient to get the American public to greatly oppose the war, and as we saw, that's eventually what happened. And so if you think about, well, why is that the case? Why does the government, why do they need to have these propaganda, these reports and give rosy reports about the progress in Vietnam or the progress in Iraq and so on?

37:05Why is that necessary if the government really is in charge and they have all the troops and all the guns? And what are these little protesters going to do? And it's, again, there's plenty of reasons you could offer, just to give a few, that as the war gets more and more unpopular, if the government doesn't pull out, well then more people are going to stop sending in their tax returns as being more honest than not, that people are going to cheat on their taxes more, that people who work in the munitions factories might start sabotaging more, or at least not working as diligently as if they're totally committed, as in World War II, for example, to the war effort, and things like that or that fewer people are going to sign up and so maybe then they have to impose a draft and all sorts of things that people, the soldiers themselves, even if they believe in what they're doing, if they know when they go home and they're just, you know, out in the bar or whatever and they tell people,

37:55oh yeah, I'm a servant over there and people are going to say, oh, you baby killer and just leave, that they're going to feel ostracized, whereas now when they come home, the whole airport stops and turns and applauds them. Okay, so it's crucial for the government to carry out its foreign empire that the public at home supports it. Alright, so that's the insight of this paper. It's on the one hand pretty simple, pretty obvious, but on the other I think it has relevance to this claim that in anarchy the defense agencies would all take over and I need to speed up. So let me get into the model and then I will finally come back and try to address what the connection is. So in this model, there's a finite population of N consumers by this set.

38:46So C sub 1 is consumer number 1, C sub 2 is consumer number 2 all the way up to Cn. And then the only way to distinguish between them is that the first are our resistors. And we'll see in a minute what that means, but just to anticipate, those are the people who, if they don't agree with what's going on, so they're going to belong to a protection agency, if they don't agree with the policies of the agency, they're not going to be as useful customers as the consumers who are, I'm just calling, and Quizzling, meaning those who collaborate regardless of the behavior of the of the group that they're a member of.

39:30Okay. All right, so now then the agencies, again there are N agencies and where each agency is a subset of the set of consumers. And so what that means is the agencies, the things that go in them, so this is set theory, is various consumers so maybe consumer one is in agency four maybe consumer two is an agency nine and so on all right and the AI are mutually exclusive and exhaustive so that just means every consumer is in one and only one agency that's what that means and then any particular agency may be empty but if consumer K is an agency L then that implies that consumer L is an agency L and what all that means are just a fancy way of saying if somebody is in an If you're in an agency with a certain subscript number, then that consumer with that same number has to be in it because he's the person running it.

40:24That's the interpretation.

40:31So now we need to get into combat in order for this thing to work. You have to model that there are losses from combat, even if you fight a group that's smaller than you. And this, for example, Hirsch Leiper's model doesn't have this feature, and he acknowledges that and just says, well, I got to start somewhere. And so clearly, to make it more realistic and to increase the chance that one group isn't going to just take over, if you have the fact that there are losses from combat, that's going to make it easier. So anyway, the way I modeled it is I say, okay, the side with the superior strength, and these primes just mean adjusted, and in a minute we'll talk about what does that mean, adjusted. The side with the superior strength is S1, they always win and they get the strength of the group they conquer but they suffer this damage where delta is a number greater than zero and the same thing with this gamma so these are just parameters and then so what's happening here just to try to give you idea is this thing right there is going to be how much each unit of the losers strength how much

41:42How much of the attackers they take out, and then times the total strength of the loser, S2. Okay, so that's why the total damage is this, but now notice, to try to make it realistic and to somehow capture the fact that if you have an overwhelming advantage, you can pick off little protection agencies without too much trouble, that's where this thing comes in, that remember S2 is the smaller one and S1 is bigger, And so, the per unit damage that you inflict gets lower the bigger this thing is compared to that thing. And so, for example, if you doubled your strength, then that's going to at least cut in half the units of damage that each unit of the other guy takes out before you conquer them.

42:28And then, so delta, the bigger that is, that's a defensive parameter. The bigger delta is, the more damage the defenders do before they get conquered. And this thing, gamma, is an offensive parameter, the bigger this is, the more it gives weight to this thing right here. So if this is a two, then if you have doubled the strength of the people you're attacking, you actually get a four-fold advantage because it gets squared. Or if this is a three, then it gets raised to the third power. All right, so anyway, this was as simple as I could make it, and yet retain the fact that the stronger your advantage, the less damage you get, but you still do get damage. Okay, and then I talked about the adjusted strength, so this is where that ideology comes into play.

43:19So if you're a defensive agency, then your strength is calculated this way, where your RIs, how many resistors are your members, and QIs, how many quislings are your members, and P2 is just some number. Whereas if you're offensive or aggressive, your strength is calculated this way, it's P1 times how many resistors you have yourself in your agency, times P2, times how many quislings. And so P1 is less than P2. So the idea is if you're at the defensive agency that everybody who's a member of you is enthusiastic and they give you the price of P2. Whereas if you go and attack some other group, to the extent that you have resistors among your own clients, they're going to give you only P1, where P1 is less than P2.

44:06So your strength has to get adjusted downward based on how many resistors are among your own customers. Now we can, for the paper, it doesn't really matter how that manifests itself, whether it means they go out and they sabotage your operations, or whether it means they stop sending in the contributions and so then the agency that's turning into a rogue, aggressive agency has to go to the bank and withdraw your funds or send armed men to your house and intimidate you. So I'm not being completely naive, I'm not suggesting that if your agency becomes a rogue agency and starts attacking people that all of a sudden you don't contribute to it. All I'm saying is you contribute less than if it's doing things that you agree with. And not everybody is like that, those are only the resistors.

44:51So I'm not imposing that all of society is willing to risk their own safety in order to limit what their aggressive agency is doing. All right, so it's a very general setup and I'm just allowing for the possibility that an agency when it's deciding should we attack someone needs to consider well what if some of our customers are really opposed they might not willingly send in their monthly payments the way they were before when they actively agreed with what we were doing okay and then the last thing that I'll do for this talk is to walk you through the first results and making it a better idea if you then want to go and look at the paper as to what this model is doing is this proposition So, if this condition is true and this condition is true, then there exists a defensive equilibrium, meaning an equilibrium where none of the agencies wants to attack anybody else in which this number Ri of consumers are independent resistors,

45:48meaning they don't belong to any agency but their own. So, they're just individuals out there who aren't backed up by anybody, all right? So, that's one of the things that if you read this literature, they think it's just obvious that if we had a society like Rothbard proposes, And I'm showing, well, not in this model, that's not going to happen, that it's possible that there's going to be these independents, and while the remaining people belong to a single agency, all right, so this isn't what I think is going to happen, but I'm just trying to show the logical conclusion that even if we imagine everybody except these tiny group of heretics or hermits are out in the mountains living by themselves and they don't belong to anyone, if everyone else is in a single agency, if these parameters are satisfied, that agency isn't going to attack them and then so beyond the mathematics of it the intuition is just that if there are enough resistors in society at large

46:42then it's not going to be profitable to go pick off the lone guys in the mountains and get their assets and then lose the enthusiastic contributions from 99.9% of society which is your customer base if you're the monopolist okay so So that's really the only point I'm making there that if it even were true that it's a natural monopoly to grow and take over society as a protection agency then it still doesn't follow that you would then turn into a rogue agency because if you had grown through reputable means then everybody's happy with what you're doing and then all of a sudden if you become unlawful people who patronized you while you were being lawful are then going to reduce their support.

47:27Let me just end this with a quick example. Most people would think that, oh, clearly in an anarchist society, if there's a homeless guy with $10 in his pocket and that's it, and he's walking by and some agent of a protection agency sees him, clearly the agent's going to stick a gun to his head and take the $10 bill. You gain $10, there's zero chance of retaliation. It's better to make $10 than to lose nothing. And so, of course, that's going to happen in Rothbard's world. Whereas I'm saying, no, that is exactly not what would happen. That would be crazy that the loss of goodwill from people seeing that the Acme Protection employee just robbed a homeless guy at gunpoint, the loss of that, and then you say, well, what are we going to gain? Oh, we're going to gain a $10 bill. It would never be worth it to do that.

48:13OK, so that's the intuition that this paper is relying on. And with that, I should stop and open it up for questions. I guess probably someone could turn the lights on if they wanted. Yeah, David. The one thing I don't know if this is a conjecture, is that I just couldn't think of a way to find a way to get money somewhere in the world that holds the ultimate credulity of what we would still try to do with these claims that we're putting into action in the United States and in the United States and in the United States and in the United States.

49:00______ Right, yeah that's that's actually true. I don't have time to go into, I wanted to I'm going to talk about the fact that my analysis does presuppose that the legal system and the enforcement system are distinct and that yes I'm assuming that there is some consensus on what does it mean to be legal or illegal and so it's true if well yes and no because part of the way you could say well the way people in my model are quizzlings could also agree with what's going on they don't consider it illegal but yeah your point is a good one.

49:54I want to give a quick insight into the relevance or applicability of the model. What you've done is shown that if ideology is efficient and strong, that a particular illegitimate move by an agency would result in a loss of a certain number of patrons, that the agency would find its place in the model. by Dr. Hoffman, like that, too. But, I mean, it began earlier than thought by Mises and others in the paper, you know, the little v.a. about the idea of consent, passive consent.

50:40It seems to me the argument could show just the argument would apply equally to these defense statements as well. If ideology is sufficiently strong that even the coercive demands of government agencies would lose some passive consent, if it were to engage in the action of these agencies, then it would not be so. Right, so we know from experience that the decisions you're looking at are very fizzling in your language. The vast majority of us will be fizzling, in a sense. The fact that, you know, if people would in fact withdraw that you said from the current United States government, If you're coming before that, you should close the page.

51:40Well, I mean, people have, in fact, the vast majority of people have not indeed looked on that concept. So I'm not sure what the argument shows exactly. Except that there could exist a condition under which people have a sufficiently strong attachment to an ideology that brought party and ethical law, and so on. So that is fact that the agency would not act in a legitimate manner. What is that argument for? Okay. So yes, you're right. And that is my view. That right now, if for some reason the government disappeared overnight, I do think a government would reemerge precisely because the vast majority of America, if we're talking about the continental U.S., the vast majority of people in that region don't mind an aggressive group outlawing competitors in the use of force and extracting revenues through coercion, namely they would all say we need a government, and so that's true, and I don't think there's any way around that fact, and so the relevance or what this gains us is these people are saying something beyond that, they're saying we could even be in an initial state of Rothbardian anarchy where we had these initially competitive firms and so on, but then market forces per se are going to lead to one huge agency,

53:00And then at that point, it's going to be unstoppable. And so what I'm saying is, well, no, if we were in that initial state and people did believe that it was wrong to aggress and invade property rights, that that would, it's true. No matter what we say, there's no way to safeguard the re-emergence of the state if everybody just all of a sudden wants to have a state that they're going to get one. So the what I'm trying to show is that the these people are neglecting when they're the considerations that the agency is going to use it's not merely how many guns of these people have and how many casualties are we going to take they're completely neglecting well are our customers going to take it into account so that's

53:55Right, I don't.

54:25The model, the results are driven by a fairly strong assumption, that it could quickly influence the register category, where for any violation of rights, even for one permit that they don't speak of or coerce, there are people who lose things in the draw at that point. that's true and that's true but but but right right again though in the model it's that difference between the p1 and the p2 could be very small so maybe it it just means that those people occasionally send in their payments late or something. Okay, so it's there's that and then also the fact that that are the number of resistors can vary and so all I'm showing is various situations in which.

55:32You're right, but your equilibrium holds, you have restrictions on the ratio of what you want to do, right? Right, right, right. And maybe, in fact, for your equilibrium to be an equilibrium, you would have to have a pretty strong ideology, but there's a weak ideology. Okay. okay okay no I don't think you would so that's I'm glad you brought that up and that's why some of the stuff it was jumping out at me for example and I couldn't get into it in the talk because with this audience I wanted to focus more on the background rather than the model so much but one of the things I was trying to find out and what's proposition two in the paper that you guys have seen but I didn't talk about here because I didn't quite finish it I was trying to say, okay, when would one agency be big enough such that if all the other agencies joined together and attacked them, that it still wouldn't be worth it for them to do so.

56:35And so I was trying to see the viability of having multiple competing agencies and they wouldn't get gobbled up by each other. And what I was finding is it was surprising me that I could have ridiculous numbers of outside agencies and it was always viable. And I realized what was going on is, so if I first compute, let's divide society and share, you know, one-tenth of all the customers among them, there's ten agencies, and I go ahead and say, would the other nine want to join forces and fight him, yes or no? And then I said, okay, what about a thousand, what about twenty thousand? And I found that the more agencies I put in and then tested, the easier it was to satisfy that condition. And so what was happening is there's a fixed cost that the bigger your coalition of rogue agencies, regardless of the proportion of people in society that are resistors, there's a greater number of them.

57:24And so actually the bigger your agency grows, and this is the economies of scale argument, the thing that sort of the offset to it is the bigger the agency grows, the more... So even if only 0.1% of society are resistors, if the agency consists of 200 million customers, that's a lot of people. And so if you're losing $10 per person, even if it's only 0.01%, you're not going to rob the homeless guy for $5 because you're going to gain $5 and lose whatever, $10 times 0.01% of 2 million people or 200 million people, all right? So that's the thing that I hadn't even realized before I did it is that it's not merely a proportional argument. There's a fixed cost that once you become a rogue agency, you instantly have this huge fixed cost depending on how big you are.

58:10And it's true, the smaller the proportion of resistors in society, the smaller it is, but it's still a fixed cost. So, it, yeah. On the difference between P1 and P2, I mean, is P1 equal to zero, is P2 equal to drop out? I mean, in other words, is it weighted in some people, I don't know, in length, other people? It could, right. I didn't take a stand. I didn't need to. In the paper that I'm going to send off these mainstream journals, I'm going to try to give a numerical exam, and I'm going to do P equals 1 and P2 equals 3 halves, just to try. But no, if you wanted to model what happens if people can just drop out, then yeah, P1 would be 0.

58:57It could be that. Yeah, or it could even be negative, meaning those people start sabotaging your operations. All right, so some of these are the things that we do, but they're actually, you know, the main cause of the net. Right, and just to admit, I feel funny. I don't, the way I'm thinking about this in terms of the real world is not, oh gee, what do I think P1 really is? I'm more, but yeah, I mean, in the model, that's what it would mean if P1 is zero, that means they just become neutral. Whereas, if your agency is doing something you don't like it and you want to go into the headquarters and plant a bomb, then that's a negative P1. All right, thanks.