A panel of “experts” appointed by the Government has recommended raising fuel prices.  The panel, headed by Kirit Parikh,  recommended a hike in domestic LPG by Rs 100 a cylinder and PDS Kerosene by Rs 6 a litre. It is not certain that what the panel called for will be implemented. Rangarajan Committee and the Chaturvedi Committee reports in the past went unimplemented.  Many newspapers reported that the panel is for deregulating fuel prices. It is not at all evident that a Government orchestrated hike in prices would be a genuine deregulation. If these goods are underpriced, certainly, the hike would be a welcome move. A hike in prices will certainly reduce fuel subsidy burden.

The findings of the panel, it is said, will be unpalatable to the government battling inflation. An increase in fuel prices, however, can’t cause a general rise in prices. Only an increase in money supply would lead to “price inflation”. If fuel prices rise, people will cut down consumption of fuel or other goods. There will not be an increase in aggregate demand. There will be no “cascading effect on food prices”. When subsidies to maintain low fuel prices are removed, the prices of other goods might come down. It will also reduce the fiscal deficit. (A subsidy of over Rs 71,000 crores was given in 2008-2009, at the expense of the innocent, long-suffering tax payer.) Price controls, needless to mention, are not a solution to price rise. Government enforced price controls to deal with price rise, as several economists have noted, is like “trying to hold down expanding pressure in a boiler by manipulating the needle in the boiler’s pressure gauge”.

Unfortunately, in India, the prices of fuels and fertilizers are administered by the Government. It should be obvious that no bureaucrat has the necessary information to set the prices of these goods. Lacking profit-loss signals, the prices set by the government would only be arbitrary. It is true that sometimes the market sets the price higher or lower than necessary to clear the market, but no one has the wisdom to correct these discrepancies. The market, left to itself will set this right. If fuel prices are higher than justified, it will send out the signal that it is profitable to produce fuel. More people will enter the market. The supply of fuel will rise. This will bring down the prices. If fuel is priced lower, producers will get the signal that it is not profitable to produce it. Some producers will leave the market. Soon prices will move towards a level which will clear the market. The market is self regulating.

It is important to recognize how the profit mechanism coordinates the market if we are to understand the harmful effects of price controls. Usually, price controls are thought of as a way to curb excess profits. But, in the market there is a tendency towards equalization of profits in all sectors. No sector can be more profitable than any other in the long run. If a sector is more profitable, there will be excess investment in two forms. One, more people will invest I the sector. At the same time, people already involved in the sector will plough back the “excessive” profits.

Government price fixing has harmful, unintended consequences. If the government sets the prices below the market level, there will be chronic shortage. Such a policy fails to take in account why prices are higher. Prices can be high only when there is an increase in money supply or a decrease in supply of goods. Price controls do nothing to cure inflation, which is purely a monetary phenomenon. When prices are set low, less people will produce the goods and the shortage becomes more problematic. The product disappears from the market, and there will be immense pressure on the Government to raise prices, if it is to cure the shortage. If the Government sets the price above the market level, it would lead to unsaleable surplus.

It is true that if the Government gets out of the price fixing business, there would be a sudden rise in prices. It might be painful to most people. But such short term pain is much better than the chaos price controls create. Shortages and unsaleable surpluses are just two such consequence of price fixing. There are several other consequences. Price controls create black markets. Customers become a menace to sellers. The quality of service comes down tremendously. People will have to resort to means of production which are expensive. There will be hoarding and delays in production. People will waste time standing in queues and searching for products. Price controls lead to further controls, and may ultimately lead to socialism, which will entirely wreck the economy. In short, Government price fixing creates chaos.

Read more on it “Reason of Price Rise and Consequences of Price Control“

The Ministry of Home affairs, Government of India, is on the way to amend the Arms and ammunitions policy. The document issued by MHA says “Proliferation of arms and ammunition in the country disrupt the social order and development.” How true is it? As in many other issues, the conventional wisdom could be wrong. India has very strict gun control laws. In India, people were prevented from bearing arms by the British under Lord Lytton as Viceroy through the Arms act of 1878 after the mutiny of 1857. Though the Arms act, 1858 was repealed in 1959, Arms Act, 1959 was put in place, supplemented by the Arms Rules, 1962. As a result, there was improvement in several development indicators, after Independence, but crime rates in India have gone up several times, mostly in urban areas.

With all these gun control laws, we were not able to prevent the terrorist attacks in 2008, Mumbai. A reporter in the location was caught saying he wished he had a gun instead of a camera. Only people loyal to the British were allowed to possess arms. Many freedom fighters were opposed to this rule. Even Mahatma Gandhi opined in his Autobiography:”Among the many misdeeds of the British rule in India, history will look upon the act of depriving a whole nation of its arms as the blackest. “I do believe that when there is only a choice between cowardice and violence. I would rather have India resort to arms in order to defend her honor than that she should in a cowardly manner become or remain a helpless victim to her own dishonor.”

Proponents of gun control usually argue that gun rights will lead to high crime rates. Firstly, a criminal is a person who violates the law. Is it logical to assume that such a violator will obey gun control laws? A criminal planning to attempt a murder won’t think “Oh, I am sorry. I don’t have a gun. So, I am not going to do this!” In one way or the other, he will get hold of a gun or some other powerful weapon. Vikram Kona writes: “There are around 40 million illegal small arms in circulation in India. Most of them are either illegally smuggled in or manufactured in the illegal cottage industries. Criminals never apply for licenses, nor do they spend a fortune to buy illegal guns. They get them cheaply and easily on the black market, and use them against law abiding citizens with impunity.” Gun control would only disarm innocent, law abiding citizens. Secondly, there is no empirical evidence to prove that gun rights lead to severe crimes. Quite the contrary, in fact! Nations with the highest crime rates are the ones with the strictest gun control laws. The low crime rate of Switzerland is illuminating. Violent crime skyrocketed after gun measures were prohibited in Australia in the last 90’s. When Washington D.C. enacted a ban on handguns, homicide rate rose 200%, while the U.S. rate rose 12%. Often, it is argued that Gun controls are the reason for the low crime rate in UK. There are two points to be noted here. Crime rates were extremely low in UK, even before the hand gun ban. Crime rate rocketed after the ban. As it is said, “Your chances of being mugged in London are now six times greater than in New York.” A study by the US Department of Justice found that there were 40 percent more muggings in England, and burglary rates were almost 100 percent higher than in the United States.

It follows from the philosophy of self-ownership and the right to own property that people have the right to defend their lives and property- If necessary, by force. If so, people should have the right to bear arms. It goes without saying that people should be held accountable for their actions too. But, it makes no sense to punish a person before the criminal act is performed. It is absurd to prevent some people from being armed simply because there are people who use guns for wrong purposes. Why should ones rights be determined by the actions of others? Should a person be prevented from driving an automobile as others drive recklessly? (People killed by their own guns are an extremely rare minority) Charles Reese perceptively noted: “To believe that guns cause crime is as stupid as believing that hammers and saws cause houses. Cars and doctors kill a lot more people than firearms, but nobody wants to ban them.” There is even an NRA slogan: “Guns don’t kill people, people kill people.”

Not for a single moment am I saying that gun rights will prevent crimes. But, people will have a more chance of protecting themselves if they are free to defend themselves. Murderers, thieves and terrorists would think twice before attacking their victims if there is a chance that they are armed. Women and physically weak people could be made strong only through gun rights. It’s ridiculous to expect policemen to be omnipresent. Defending oneself is a skill which anyone can acquire.

It should also be said that a ban of guns won’t eliminate guns from the society. There will always be people who get hold of guns, just like people have access to drugs despite of strict penalty. Such laws can only be enforced selectively. Almost always, people who are not in good terms with the authorities will be punished. The real intention of the people in power is to increase their power through disarming people. Gun control is the greatest threat to individual liberty.

Our country India has a long history of Socialistic policies. Jawaharlal Nehru, the first prime minister India, and an admirer of Stalin, modeled the nation on the brutal slaughterhouse of Soviet Union-In the name of intelligent planning. It didn’t occur to him that planning of a central authority tampers with the plans of individual citizens. Rulers who came after him weren’t any better . It is true that things have improved slightly in the past few decades as of economic reforms, but the essentials remain the same. The concept of individual liberty is unknown to most Indian citizens.

Most Indians are unsatisfied with the state of things. They long for a radical change. Some of them are conceited enough to think that they can change things for good if they rise to positions of power. Though some are slightly aware of the inherent systemic problem, their understanding is not deep enough. They fail to realize the complex level of understanding of social sciences it takes to bring about a change.They step into action instead of trying to bring about a radical change in the mindset of people through intellectual means.Recently I came across the manifesto of such a political party, Jago¹ . What makes this political party different is that it pays lip service to the free market economy. They vaguely understand the importance of a high level of economic freedom, but are unable to understand the inherent contradictions in their views. Let us analyze their political positions in some detail.

1. People would be granted individual freedom over and above a social minimum-which means: basic survival needs such as food, clothing, shelter, education, healthcare and security needs will be met by the Government.
   None of these basic services grow in the nature, or are absorbed from the atmosphere. They are produced by individuals. If some people are to be provided with these facilities, who is to produce them? What if people who produce them are not willing to share their produce? Will they be purged? Inflating the rights of man can’t be done without an outright infringement of their fundamental rights. Often people talk of the right to a free education or health care, for instance, without giving a moments thought to its cost. When some sane person opposes their Utopian dreams, he is casted off as a person who doesn’t care for the poor. It should be noted here that these services are demanded as people should have the freedom to pursue their self interest. Nothing is said of the self interest of their innocent victims. The fact that it is not in ones rational self interest to gain the unearned too, is evaded. So much for their belief that the free market economy is ethically superior. The “basic minimum” can’t be provided without mulcting the tax payer, and hampering capital accumulation. It is capital accumulation which makes high wages and a high living standard possible. The welfare state is totally incompatible with the free market economy. One can’t choose both. Both are mutually exclusive possibilities. They have made their choice. There is no other.

2. Soviet Russia made impressive initial progress.
   This is a distortion of facts. It concedes too much. The majority of people were starving themselves to death even in the initial phase. If even enemies of collectivism are duped by such propaganda, we can’t blame the communists for spreading them.

3. A Government is necessary for maintenance of law & order, enforcement of contracts, justice, defense, currency.
   All these services could be provided by the market, and in a much efficient manner. Apart from the inherent immorality of taxing people and monopolizing these sectors, it should be said that  Government is an  inefficient organization. As law, defense , police and currency are presently provided by the Government, most people have problems imagining how this could be done by the market. However our living standards shouldn’t be dragged down to the level of imagination of such retards. It is an elementary fact of economics that monopolies are bad for the consumer. It applies to defense , law and police too. Government control of money and credit , as we all know, had led to continuous debasement of money. Arbitrary credit expansion in not possible under a free, full reserve banking system based on Gold Standard.

4. Reservations would be replaced with free and mandatory school education.
   One interesting thing about most opponents of reservations is that they propose quality primary education as the solution. They are too dull to realize that free primary education is as, or more harmful than reservations. Both infringes personal freedom. There should be no such free gifts. Mandatory school education is abduction. Children of parents willing to homeschool their children, shouldn’t be dragged to Schools which are similar to prisons. Subsidization of education would only prevent most children from acquiring the education they would have acquired, if left alone.²

5. There would be only one syllabus for all schools and only one all India level examination conducted by only one board at class 12.
   Potential dictators want to decide what is good for the society, and ram it down their throats. The education scene can’t be improved by forcing everyone into the same mold. There is great variation in the skills and interests of various children. A common syllabus decreed by the Government does injustice to all sorts of children. They should be free to pursue their interests. Only competition among various modes of education for Objective truth would improve the state of education.

6. All infiltrators coming from Bangladesh and other countries are to be identified & punished.
   No one with the slightest understanding of the concept of liberty would support this. Government doesn’t rightfully own all the land of a country, hence and shouldn’t have the right to have a say in these issues.

7. Capital punishment for major crimes.
   Capital punishment is barbaric. One can’t be absolutely certain that a person has committed a crime in many cases. So, it makes little sense to take their lives off. Moroever, history proves that such severe punishment doesn’t prevent the likelihood of crimes.

8. All voters will get Rs. 800/- per month
   No comment is necessary on such stupid schemes.

9. Low tax rate would mean better compliance, more revenue and less corruption.
   It seems this conclusion is based on the fallacious “Laffer curve”. 1) It is not at all evident why Government revenues should be maximised. 2) There is no guarantee that a reduction in the tax rate would increase the revenue. It depends on the scale of reduction and several other factors.

10. The function of the government would be to see that no deforestation takes place.
    As long as there is demand for wood, people will grow trees. It is a profitable business. If a particular owner stops producing them, there is an opportunity to make profits and others will. Every good that is in demand will be provided by the market. If no one produces wood, someone can easily make profits by producing it. There will always be people willing to wait for years if it is necessary. There is no shortage of people to engage in such activities. Who is more likely to preserve a land and grow trees-A bureaucrat who has no incentive to preserve a land, and has to exploit the land as much as possible during his time, or a private owner who has every incentive to preserve the land, and grow trees as his revenues from the land depends on the preservation of that land?
    People are more likely to preserve trees when it is profitable to do so. In Europe, where private ownership of forests is far more common (Unlike in the US) less people complain of destruction of timber resources.

11. Population growth should be controlled.
    Population doesn’t impede development. New York City is highly populated. But a lot of wealth is being generated there. Japan is thickly populated. It is a very rich country.Holland, Monaco, Britain and Liechtenstein are thickly populated.Europe is a thickly populated continent, next only to asia, whereas African countries are heavily underpopulated. Hong Kong has a higher density of population, yet it is much wealthier than India and China.  Most people point out the large population of India and China, for instance, as a cause of underdevelopment.That’s plain nonsense. It is the lack of economic freedom, not population which makes countries poor.

12. Ban on child-labor will be strictly enforced.
    Banning child labor would only throw some many children and poor families into poverty and starvation. Children join the labor force only when it is an economic necessity. A ban on child labor doesn’t change the fact that these children badly need those jobs. Such children , in the words of Ludwig Von Mises, would “infest the country as vagabonds, beggars, tramps, robbers and prostitutes.”

By now, it should be evident that the goals of Jago party has nothing to do with Individual freedom. Libertarians should think twice before supporting such inconsistent defenders of Individual freedom. It would only harm our cause of pure liberty.

1. Jago Party website [↩]
2. Read more at Hypocrisy of Anti-reservation activists [↩]

How Anarchy Would Work
Insurance companies would either sell defense or maintain proximity with Defense Companies. If we both are customers of Reliance Defense Company, and a dispute between us occurs, the dispute would be submitted to the court of Reliance Defense company, or a court patronized by Reliance Defense Company. The decision of the court would be respected. If you are found guilty, the Reliance Defense Company, or its Insurance Company would compensate me for the damages done by you. It will be then the task of Reliance Defense Company to get back their money by putting you in a debtor workhouse (prison) or by garnishing your wages. I, the Defense Company, and the Insurance Company would be in a position of inconvenience due to the damages caused by you. So, it would be in the rational self interest of Defense and Insurance companies to not deal with (Insurance companies might rate their insurance premiums up in some cases) you, or other people with criminal tendencies. If a person doesn’t have insurance, no sane person would deal with him in any manner, as they won’t be able to claim compensation in case a dispute occurs. Almost every one would have Insurance under anarchy, as without Insurance, one can’t get a job, rent a house, buy a car, travel through a private road or get into any other contractual situation.

In the case mentioned above, If I am a customer of Reliance Defense Company, and you are a customer of Tata Defense company, our dispute would first be set for arbitration in the court of the plaintiff (I)-which means: a court of, or patronized by Reliance Defense company. If the defendant (You) is found innocent, the matter has come to an end. If you are found guilty, then the arbitration would run in the Court of Tata Defense Company. If that court too finds you guilty, you would be punished. If it finds you innocent, the arbitration would move to an appeals court. The decision of the appeals court would be respected. If a person (defendant) refuses arbitration, the arbitration would be held in the court of the plaintiff, and the decision would be binding. So, a person who didn’t commit a crime will not refuse arbitration in normal cases. If he disagrees with the decision, he can take the case to his court, or a mutually consented appeals court. It is rational to assume that if the defendant and the plaintiff are customers of different Defense Companies, these Companies together might decide the court in which the arbitration would run. The courts would try to be as honest and objective as possible, as their profits depend on the number of cases they receive for arbitration. People won’t deal with dishonest Insurance companies, or their customers, as no sane person would want to be taken advantage of. So, a dishonest Insurance company would soon find it deserted by almost all its customers. An Insurance company which patronizes poor courts too would be soon deserted by its customers.

Wouldn’t Defense Companies battle?

Battles could be ruled out for two reasons.
1) Wars are costly and would result in high Insurance premiums. Most customers would desert Insurance Companies with high premiums.
2) People won’t deal with the customers of warring defense agencies as they would lose in any case. As of it, the customers of the warring agency would be forced to patronize another Insurance company, if they want to get into contracts with other people.
A court too should be honest if they want more cases handed over to them. What if a rich person bribes the court of Insurance company? If that is the case, most people won’t use those courts and Insurance companies. Nothing like that happens in the case of Government courts. People are forced to use them, even if they don’t trust them.

Fraud under Anarchy

Fraud would be kept at minimum as Defense Companies would lose their profits if they don’t. If a defense company engages in fraud, most of its customers would desert it, as people won’t deal with the customers of such a defense company, as they don’t have a legal recourse in case of crimes.

Poor under Anarchy

It is often argued that poor will be defenseless under Anarcho-Capitalism. However, the argument completely lacks sense-For several reasons.

1 ) It is very unlikely-nearly impossible that there would be extreme poverty as of now under anarchy.

2 ) Under the present system, a rich person can easily bribe a bureaucrat or a judge and get his things done as bureaucrats and judges are not risking their own funds. A private judge is risking his own funds and profits, and he would lose his income or profits if he isn’t honest or objective. It is very unlikely that bribery is going to work.

3 ) Customers would desert courts which have a poor reputation.

4 ) Insurance companies selling defense wouldn’t patronize corrupt courts as, if they do, their customers would patronize another Insurance company. Such a court would be soon out of business. Nothing like this happens under statism.

5 ) One might argue that public courts can work with proper regulation. It will inevitably founder upon these questions-Who regulates the regulators? What is the incentive? How does such a system make profit and loss calculations? Without profit-loss calculations, how does one know whether job is being performed well or not?

6 ) As Roderick Long has pointed out, “any court that got the reputation of discriminating in favor of millionaires against poor people would also presumably have the reputation of discriminating for billionaires against millionaires. So, the millionaires would not want to deal with it all of the time.”

7 ) Under anarchy, the media won’t have to spend most of its space on politics. They would divert more of their energy to exposing corrupt institutions and extraordinary achievements of men. People won’t deal with customers of dishonest defense companies, and these customers will be forced to move to another Defense company.

8 ) A rich person who commits a crime would suffer from boycott by his clients and customers when insurance companies reject him. Such a boycott affects the rich more than the poor.

9 ) Even if a poor person can’t afford to file a case, he can sell that claim, or part of that claim to a rich person. Such a system existed in Iceland. That would make sure that eventually, all sorts of criminals are punished. One can’t commit a crime against a poor person and go unpunished. If someone murders a poor person, the person who has homesteaded the estate of that poor person can file a case and get compensation.

Do Anarchists assume a change in human nature?

No change in human nature is assumed here. We, libertarians don’t take a rosy view of human nature. We see human nature rightly, and admit all its flaws. Three things have to be pointed out
1) If you believe human nature is flawed, you have to admit that the politicians and bureaucrats chosen by these flawed creatures too would be of that sort, and there would be no excuse for state action.
2) A change in human nature is not necessary for libertarian anarchy to work.
3) People with power lust are more likely to rise to the top under statism. The state attracts all kinds of rascals.

What libertarian anarchy does is that it leads to a system in which criminal acts are hard to perform. It also punishes those who resort to such acts in a just manner. Under the present system, a judge has no financial incentive to be honest and objective. He has only a moral incentive. Under anarchy, he would have both financial and moral incentive. Ask yourself which system will deal with criminals better.

Why Anarchy?

Almost every major problem mankind faces can be traced back to the state. The state drags innocent people into war. Involuntary unemployment results when a minimum wage law is passed and labor union coercion is sanctioned. Price controls result in shortages. Protectionism leads to poverty and wars. High prices and poor quality products result when Government monopolizes certain industries. Taxation prevents capital accumulation. Credit expansion leads to inflations and bubbles. Some estimates say that there were nearly 262 million deaths caused by the Government in the twentieth century. In the light of all this, I see no reason for a person who loves humanity to support the state. It should be obvious that in any sector, monopoly is bad. How do statists get around this fact? In any monopoly, there is an incentive problem. There is no incentive to provide better service at a low cost. It is not just that. There is no way to know whether the service is provided in the best possible manner in the absence of competition.

Isn’t voluntary taxation better?

Voluntary taxation is a contradiction in terms. Taxation implies that money is collected at the muzzle of a gun. How could it be voluntary? Lets forget the definitions for a moment. Voluntary taxation is defined by minarchists as, people are not coerced to pay their taxes. People are free to pay their taxes. But this sheer aspect doesn’t make the taxation voluntary. If an area milkman forces every other milkman to stop selling milk in your neighborhood, and then says ‘you are free to buy milk from him, by your own volition’, is that really voluntary, or are you forced to buy milk from him because he has eliminated all the possible options using force. Lets say you say ‘I want to raise my own cow and make my own milk’, to which the milkman forces you to do it. Although he is allowing you to pay him voluntarily, he is forcing you to seek anybody else’s services thereby making it involuntary taxation. The problem with minarchy isn’t just that state collects its revenues using coercion. State prevents anyone from competing with it.

Why do minarchists make an exception for defense, law and police? Some minarchists believe in the Non Aggression Principle. Why don’t they apply it to the case of Security? How monstrous is it to forcefully extort money from a person maintaining the pretense of protecting him? It could be argued that these are public goods and can’t be provided privately. But, this argument was refuted several times. In the past, most of the roads and lighthouses (Public goods theorists usually point out the case of light house. Ronald Coase has pointed out the fallacy. Light house owners charge people for using the harbor) were privately owned. By 1800 there were over 60 private road companies in the United States and by 1830 they had built over 400 private “turnpikes” (highways). Out of 46 Lighthouses in England in 1820, 34 were privately owned. There was privately produced law in the ancient Ireland and medieval Iceland, for instance. And several thinkers have envisioned how libertarian anarchy would work- and it sounds perfect.

Why do I want to impose anarchy on people against it?

Some argue if people don’t want Anarcho-Capitalism, imposing it over them would be violating their freedom. If you tell a thief to not rob from your house, will you be imposing your views on him? If someone takes your money by force, gives you stale food, forbidding you from buying food from anyone else, is that right or wrong? If you tell that person to not do it, will you be imposing your views on him? Will you be violating his freedom? That precisely is what Government does. It forcefully takes money, gives poor quality defense, and forbid us from buying the service from private organizations.

Is human nature consistent with anarchy?

State is a relatively new institution. Mankind has lived hundreds of thousands of years without a state. If so, is it true that human nature is not inclined to live under a state? How come we are living under a state then? Slavery and serfdom existed for a long time. Doesn’t that mean slavery is consonant with human nature? If so, how men got out of it? Obviously, when people realized the advantages of co-operation, people shifted to the present system. When people realize the advantages of anarchy, they would move into such a system. No change in human nature is required. Blaming human nature for being flawed doesn’t make any sense. People are mostly corrupt under the present system as people respond to incentives. Under statism, men have every incentive to be corrupt. To say that anarchy won’t work as human nature is flawed is tantamount to saying that capitalism won’t work as most people are poor. A person who makes such an argument fails to understand that it is precisely the lack of Capitalism which made the people poor.

Minarchy isn’t sustainable

There is no empirical or theoretical evidence to prove that a constitutionally limited government is sustainable. Government power has increased steadily in countries like United States and Britain. Tax experts like Irwin Schiff has pointed out that according to the law and constitution of United States, taxation is illegal. He is in jail now, and his book “Federal Mafia” is banned. That’s not an aberration, but the result of a limited Government. I admit that Anarcho-Capitalism was not the dominant form of social organization for the large part of human existence. But so wasn’t democracy or a limited Government. These are recent developments. The limited Government in United States broke down after 8 decades as of a civil war-But it took 1000 years for the near Anarcho-capitalistic system to break down in Celtic Ireland, and 290 years in Iceland. Who do minarchists support democracy and a limited Government then, when it is obvious that anarchy is far more workable?

How can one support Anarcho-Capitalism when it was never practiced anywhere?

It is true that pure Anarcho-Capitalism was never put into practice anywhere. However, that can’t be an argument against anarchy. A person who invents an electric bulb doesn’t have to prove that there were electric bulbs in the past. A new invention, innovation or theory is something which crushes all existing conceptions. It is unprecedented. I think this should be obvious and it makes no sense to argue against it.

Empirical Evidence for Anarcho Capitalism

Anarcho capitalism was not practiced in most parts of the world for most of the human history. However, there were societies which were really close to Anarcho-Capitalism. There was the law merchant in the past, as Bruce Benson has pointed out. Such a system has worked in Iceland, Celtic Ireland, American old west, British colonies in North America, Rhode Island, Albemarle, and Pennsylvania. There is a lot of historical evidence to prove that these societies worked really well and had sophisticated legal codes. Crime rates were strikingly low. In Celtic Ireland, it lasted for nearly thousand years. It was a civilized, advanced society as there was no Government administered justice. Even when these societies collapsed, it was not due to extreme anarchy, but due to contradictions in the anarchistic structure. Iceland is a classic example, where chieftains were granted more power, and religious issues led to a civil war.

Further Empirical Evidence: Present day Somalia

Somalia hadn’t a central Government since 1991. Yet, it has an efficient telephone system and mobile phone network, which is far better than that of its neighboring countries. The same is true of the electricity system. The situation is Somalia is much more peaceful than it was under the Government, and hence it is easier to do business there. There is a clan system which enforces contracts, though there isn’t a monopoly Government to enforce law. There was an improvement in 14 out of 18 development indicators after the collapse of the state in Somalia. One indicator was the same, and the other one, GDP, was blown up by the Government during its rule. Peter Leeson points out that “Under statelessness life expectancy in Somalia has grown, access to health facilities has increased, infant mortality has dropped, civil liberties have expanded, and extreme poverty has plummeted. In many parts of the country even security has improved. In these areas citizens are safer than they’ve been in three decades.” Even World Bank Economists like Tatiana Nenova and Tim Harford admit that things are getting better in Somalia. These Economists aren’t anarchists by any stretch of imagination.

Even in the modern day India, Mahatma Gandhi and Jawaharlal Nehru are considered as “Gods”. Any attempt to criticize them is met by denial and hatred. I remember that years back, when I made a case against the socialist policies of Nehru in my college hostel, every one of them present there turned emotional. They argued that India is a poor country, and hence need intelligent planning, to which Nehru made significant contributions. Their response was similar to what you would get from sulky children when you point out that their parents could be wrong. “Breaking Free of Nehru”, by Sanjeev Sabhlok, a resigned IAS officer, flies in the face of such an attitude. Sabhlok is one of the very few Indian authors I have read who has a reasonably good understanding of Free Market Economics. He points out with extreme clarity and precision that the legacy of Nehruvian Socialism has done incalculable harm to India.

The author begins by clearly stating that this is not a book about blaming Nehru. He doesn’t question the allegedly “good” motives of Nehru, and is of the opinion that he was an honorable man. It is not the ends Nehru had in mind he questions, but the means he used to achieve them. He takes for granted that not many would argue against helping the poor. Using violent coercive means to achieve this end, however, produces the exact opposite result. This should be obvious. Nothing good was ever done through coercive means.

Sabhlok, who served the Indian Government for eighteen years, knows from his own experience that such policies breed corruption, poverty and inefficiency. He remembers an IAS officer who joined with him in 1982 saying that his “sole objective in joining the service was to make money”. He was once asked by a young man whether he moved to the Assam cadre from Haryana cadre as more money is to be made in Assam. In all the years he served the Indian Government, he didn’t come across a single officer who even compares with the public officials he met in Australia, where he works now. I don’t have to quote extensively from his work. Everyone knows these facts.

I find it really sad that Sabhlok’s attempt to set up a liberal political party in India didn’t succeed. India badly needs politicians who have studied political economy from a Classical and Austrian point of view. India, needless to mention, has never known the concept of liberty. Even when our freedom fighters and other politicians used words like “freedom”, they never clearly understood what it really means. A hampered market economy was the intellectual default. This wouldn’t have happened if people who know better had spoken up for the cause of Individual liberty. And that precisely is what books like “Breaking Free of Nehru” do.

I have, however, several differences with the book. I would like to mention it here. I don’t think Nehru’s motives were good. I think we should be really careful when branding the motives of a person as good, when the end result is chaos. Good-By what standard? We should remember the words of Ayn Rand-“Do not ever say that desire to do good by force is a good motive. Neither stupidity, nor power lust is a good motive”.

The author says that, in India, there was forceful expropriation of property and land in the manner of Robin Hood. Several thinkers, including Ayn Rand and her followers, have made this mistake. Robin Hood, in my opinion, was actually a good guy. I shall quote the philosopher Tibor Machan: “Often it is Robin Hood who is held up as the role model for justifying taxation: Didn’t he “steal” from the rich to “give” to the poor? Well, not, not really. In the original version of the legend, Robin Hood did just the opposite: He stole from those who stole from the poor and returned the loot to the rightful owners. In those days the upper classes, from the king to all his cronies, routinely engaged in extortion. They disguised this, however, with the phony claim that everything belongs to the king and his cronies. Yes, monarchs and those who rationalized monarchy spun this fantasy and managed to sell it to the people that they where the rightful owners “of the realm,” that they had a “divine right” to rule us. This way when the bulk of the country went to work on the farm or wherever, they had to pay “rent” to the monarch and his cronies.”

Like the author, I don’t think that progressive taxation is compatible with Capitalism. It is true that marginal utility of money decreases with increase in wealth, and a rich person cares far less for a thousand Rupees than a poor person. However, this doesn’t contradict my position. There is a limitless need for wealth. The total utility of the wealth a person has should go on increasing so long as wealth has any positive marginal utility to him. There is a need for more wealth so long as additional wealth has any marginal utility. Progressive taxation would only undermine savings and capital accumulation. Taxation is completely incompatible with Capitalism. There is also the Inherent immorality of taxing Peter to pay Paul.

There are some statements in the book, which libertarians like me can’t agree with. Freedom, the author says, is good, and anarchy is bad. I can’t disagree more. Anarchy is the logical end result of total freedom. Anarchy and Capitalism are fully compatible. There is no justification for a bunch of robbers to take money forcefully from you and providing you services, forbidding that you buy from others. All services, including defense and security services could be provided by private individuals. Government is in fact a criminal organization which robs murders and drafts the citizens in a particular geographical area.

The author makes a case for Government regulations quoting an example of a coal miner working under dangerous conditions. However, it is not at all evident that there is a need for a Government to ensure safety for the worker. In case a worker dies in a free society, the Insurance Company of the employer would have to compensate the employee’s family. Insurance companies, hence, would have a policy to make sure that its customers ensure safe working conditions, as their profits would depend on it.

Another point where I disagree with Sabhlok is on social security and public funded education. We libertarians don’t want the poor to starve or children to go without education. Quite the contrary! We believe that the society would deal with these issues in a better manner in the absence of Government coercion. Under Capitalism, people who deserve such aid would not be many and could easily be taken care of by private organizations and voluntary charity.

All said, I highly recommend this book to anyone who wants to understand Individual liberty in an Indian context. Also visit his Freedom Team Of India website, and consider joining the Freedom team.

Alan Greenspan, the former chairman of the Federal Reserve, was often considered as one of the most powerful men on earth. What is interesting about Alan is that he was once an acolyte of the novelist-philosopher Ayn Rand, and a proponent of the Gold Standard. It is indeed an irony that he later renounced his views on Gold Standard and headed the very institution he attacked–The Federal Reserve.
As advocates of a free market economy know, it is a characteristic of the enemies of capitalism that they blame the evils of interventionism on the free market. It is, they say, the “laissez faire” policies of Alan Greenspan, which caused the present economic crisis. They conveniently forget that Greenspan gave up his views on Capitalism long ago. It is also forgotten that the existence of the Federal Reserve is incompatible with a free market economy. How is Government manipulation of money and credit a free market policy? Isn’t it a form of central planning? Isn’t it ridiculous to blame the present mess on Capitalism when Capitalism never existed in the first place?
There is one thing in common between those who blame Capitalism for the present crisis. It is that they are totally ignorant of Economics, and yet hold strong opinions on the topic.
As of a gross misrepresentation of terms, anti-capitalists now hail Greenspan as a “laissez-faireist”. As everyone, including anti-capitalists know, a full free Capitalism never existed anywhere in the world. All nations known as Capitalist are “mixed economies”. Isn’t it the same men who remind us this fact when we point out the fact that higher the degree of freedom, higher the prosperity who blame all these evils on Capitalism? When an allegedly ‘Capitalistic’ nation “breaks down”, value judgment is placed on the system, ‘Capitalism’ and when a Socialistic nation is tyrannical, value judgment is placed on individual leaders and not on Socialism. It just obviates that they know the truth deep inside. In a mixture of Statism and Capitalism, it is Statism which causes all the evils and it is Capitalism which takes the blame. Statism means force and Capitalism means freedom.
The very same men argue Soviet Communism failed not because the system was intrinsically evil, but as human nature is flawed. They argue, the flaw isn’t in bureaucracy as such, but in individual men. They scream ‘evils of commercialization’ when it comes to a private enterprise. Why is value judgment passed on the system when it comes to the Free Market? Why is value judgment passed on individual men when it comes to bureaucracy or statism? The answer is obvious.
To make sense of the present crisis, one should first have a strong causal theory.
This phenomenon of boom-bust cycles is clearly explained by the Austrian theory of Business Cycles. Economic depressions are caused by nothing inherent in the free markets, but due to government interference in the market-specifically, government manipulation of money and bank credit. At any point in time, a particular amount of money would be spent in investment and savings and the rest in consumption. This investment-consumption pattern would be decided by the time preference of the people. If time preference is low, the investment consumption proportion would be high and if time preference is high, it would be low. The boom starts when banks print money and lend it at lower interest rates to businessmen and the general public. The increased money supply lowers the rate of interest below the market level artificially. This artificial lowering of the interest rates makes several projects seem profitable to businessmen which wouldn’t have appeared so otherwise. If the interest rates had fallen due to lower time preference of people, and was backed by real savings, boom-bust cycles wouldn’t have taken place. But, the artificial lowering of the interest rates sends wrong signals to businessmen about the savings-consumption pattern of individuals. Businessmen are mislead to think that there are more savings, when there isn’t. This low interest rate sends a signal to the entrepreneurs that consumers are asking for more goods and services in the future. In order to fulfill those future demands at a future date entrepreneurs starts new long term capital projects in present time which will enable them to produce more in future and thus meet the future demand of consumers. This leads to mal-investments. The recession is the necessary part of liquidating these mal-investments.
The Federal Reserve kept the interest rates artificially low and encouraged people to borrow, which lead to the housing bubble. Add to this: The community Reinvestment act forced banks to lend to poor debtors. Add to this: Government licensed rating agencies gave AAA rating to mortgage backed securities. In an entirely free market, lending to poor debtors would never have happened, as it won’t be profitable. It was Federal Reserve’s inflationary policies which made it profitable.
It makes no sense to blame the present crisis on deregulation.51, 000 new regulations were added in the past 12 years. The financial and housing system is highly controlled by the Government. There was never a free market in finance and housing. Fannie Mae and Freddie Mac are government-sponsored, government regulated mortgage giants. Banks are chartered, defined and regulated by the Government. Government promoted increased home ownership. The existence of the Federal Reserve is totally incompatible with Capitalism. Artificially low interest rates wouldn’t have been possible in the absence of the Fed. The existence of the Securities and Exchange Commission too is incompatible with Capitalism.
Let’s now analyze Alan Greenspan, the man, in detail. My introduction to Alan Greenspan was through an article-“Gold And Economic Freedom” he wrote for Ayn Rand’s “Capitalism-The Unknown Ideal”. In the article, Greenspan made a strong case for free banking, the Gold Standard and a free economy. It is safe to assume that he renounced his free market views for the Chairmanship of the Fed. He is no longer an Objectivist or a Capitalist. He might be considered as a traitor to Objectivism and Capitalism. He wrote in his autobiography about Objectivism that “as contradictions inherent in my new notions began to emerge the fervor receded”.
When Greenspan was asked whether Ayn Rand would have been a fan of the Federal Reserve, he answered that they never discussed the issue in particular. This is certainly a dishonest statement. In his 1966 article for the Objectivist Newsletter, Greenspan himself wrote these words: “Under the gold standard, a free banking system stands as the protector of an economy’s stability and balanced growth.” And More: “A free banking system would have been compelled, by economic necessity, to put the brakes on this process of runaway speculation. Credit and investment, in such a case, would be drastically curtailed; the banks which made unprofitable investments, the enterprises which proved unproductive, and those who dealt with them, would suffer—but that would be all; the country as a whole would not be dragged down. However, the “anarchy” of a free banking system had been abandoned—in favor of “enlightened” government planning.” However, when Greenspan was made the Chairman of the Fed, he didn’t even make a move to institute the Gold Standard.

In his Biography, Greenspan wrote that he has always harbored nostalgia for the Gold Standard which guaranteed price stability. Further, he wrote that he doesn’t see the likelihood of its return in the near future and it is a necessary cost for the existence of the welfare state. What is this statement intended to mean? It is certainly that the Federal Reserve creates money out of thin air to fund the welfare state.Moreover,Greenspan got it all wrong.Price stability is both unachievable and undesirable. As Friedrich Hayek had once written ,the “impossibility of achieving in practice an absolute stabilization of the level of prices in a dynamic economy has been proven time and again.”

When he was asked in a recent interview whether he was wrong, he replied-”Well, partly.”
“A critical pillar to market competition and free markets did break down,’ Greenspan said. ‘I still do not understand why it happened.’” “Those of us who have looked to the self-interest of lending institutions to protect shareholders’ equity, myself included, are in a state of shocked disbelief.” Was this the man who wrote this about the 1929 Crash that “The excess credit which the Fed pumped into the economy spilled over into the stock market–triggering a fantastic speculative boom.”? He blamed the fraud of Enron, WorldCom and Global Crossing on “infectious greed”. Wasn’t it Greenspan who wrote for the Objectivist Newsletter that “it is precisely the ‘greed’ of the businessman or, more appropriately, his profit-seeking, which is the unexcelled protector of the consumer?”
The greatest crime that Greenspan had done was not his inflationary policies during his term. It was that he “admitted” that his belief in enlightened self interest was wrong! Greenspan was just passing the blame to the market. Surely, this man is a hypocrite!

Education is a valuable tool required for survival of which the formal education forms a very small part. There isn’t anything special about education which makes it a birth right. Yet, I have found that a lot many libertarians make exceptions for education. Inspired by economists like Milton Friedman, they support programs such as “School Choice”. It makes one wonder whether they have any real understanding of the market economy. If they really believed in the superiority of the market in providing for the society, they wouldn’t have supported School Vouchers. They would have let the market take care of the situation.
There are several problems with the voucher system. The most important one is that School Vouchers don’t eliminate taxation. Public funded education is the exemplification of the Marxian idea “From each according to his ability, to each according to his need”.¹ Every one, including homeschooling parents, and childless ones are forced to pay for the education of the children who they may or may not care for. Tax payers pay according to their ability. Parents who recklessly produce children get according to their need. Nothing can be more monstrous than that. Taxation diverts production to fields which may not satisfy the needs which are more urgent for the people.
What most of the supporters of the voucher system pretend not to understand is that if Government is to fund the education of children in private schools through taxation, it is obvious that Government would have a say in how these funds are being utilized. One who pays the piper calls the tune. It would eventually lead to a total control of the education system by the Government. It goes without saying that under this system most of what children would be taught under this system in the name of Social sciences would be mostly Government propaganda. There wouldn’t be autonomy even in the case of private institutions. There would be a call for more accountability and regulation which would lead to stagnation and less innovation in the field of education.
On an entirely free market, schools would have to compete with each other in providing better education at a lower price. The voucher system clearly tampers with it. It reduces all incentives for cutting costs as the fee is not given out of the parent’s pocket, but from the Government. The result would be inefficiency and a high cost for maintaining the system. It in turn leads to less children receiving quality education.
Some schools would be out of business due to the voucher system. Schools which don’t accept the vouchers would find less people to pay for the education which it provides. Voucher system, needless to mention, breeds parasitism and dependency.
What most libertarians forget is that the voucher system is against the founding principle of libertarianism: The Non Aggression principle. No one has the right to take from other in the name of noble motives. To begin with, it is not a noble motive to take from the producer to give to the parasite. Coercion is hardly a libertarian principle.
It is interesting that the supporters of this program call it “School Choice”. What does that mean? Should the tax payer be molested in order to provide parents with enough choice? There are always enough options to choose from under a free market. The voucher program would only reduce this choices by leading to Government dictated syllabus and curriculum. It is utterly naïve to think that Government would fund the education without having a say in it. Notice the secret admission of the proponents of this policy that the government is a failure in providing its citizens with quality education.
Why are these libertarians calling for free food, housing or health care when it is well evident that these are more important and urgent needs than education? If they have real faith in the superiority of the market, why don’t they call for an all-out privatization? The answers are not obvious.

1. Story of Socialism and Public Welfare, Reason for Liberty [↩]