Anarcho-Capitalism Explained in 5 Steps

Anarchism is often considered to be a form of socialism. Many early anarchists such as Proudhon, Bakunin, and Kropotkin all advocate the abolition of the state and its replacement with more communal, less competitive, forms of social organization. However, not all anarchists are socialists. Over the last 50 years, a new brand of anarchism has gained increasing traction: anarcho-capitalism. In this article, we explore the main tenets of anarcho-capitalism, paying particular attention to the work of Murray Rothbard and David Friedman.

Like their socialist brethren, anarcho-capitalists (also known as libertarians) advocate the abolition of relationships of authority and, by extension, the state. Like Kropotkin and Bakunin, anarcho-capitalists such as Murray Rothbard argue that the state is necessarily coercive and a major impediment to the achievement of human freedom. However, unlike early socialist anarchists, anarcho-capitalists take inspiration from classical liberalism and Austrian economics, especially the work of Ludwig von Mises and F.A Hayek. As a consequence, they do not necessarily aim to make society more communal. Instead, they envisage a world in which individuals voluntarily trade with one another according to the norms of a free market.

In this world, the core functions of the state (e.g., administering justice, policing, protecting property, and building infrastructure) would not cease to exist. Instead, anarcho-capitalists argue that these functions should be privatized. In place of courts, they advocate voluntary adjudication systems (Friedman, 1973, p. 107). In place of the police, they advocate private defense or enforcement companies. Instead of having the government tax people’s wages or companies’ profits to build infrastructure such as roads, they envisage a world in which private companies build the roads and charge those who use them a fee.

2. The Non-Aggression Principle 

From this premise, anarcho-capitalists deduce the principle of non-aggression, which holds, as Rothbard puts it in For A New Liberty (1973):

“…that no man or group of men may aggress against the person or property of anyone else. This may be called the ‘nonaggression axiom.’ ‘Aggression’ is defined as the initiation of the use or threat of physical violence against the person or property of anyone else.”
(Rothbard, 1973, p. 27).

The reason is that, by using violence, “the aggressor imposes his will over the natural property of another – he deprives the other man of his freedom of action and of the full exercise of his natural self-ownership.” (Rothbard, p. 45)

The principle of non-aggression, in turn, underlies anarcho-capitalist’s opposition to the state. In the words of Murray Rothbard:

“Anarchists oppose the State because it has its very being in such aggression, namely, the expropriation of private property through taxation, the coercive exclusion of other providers of defence services from its territory, and all of the other depredations and coercions that are built upon these twin foci of invasions of individual rights.”
(Rothbard, 2016)

In his 1973 classic The Machinery of Freedom, David Friedman outlines his vision of an anarchist society. Anarcho-capitalists forcefully reject paternalism, i.e., the view that people must be forcibly protected from themselves. The only enforceable claim people have against others is to be left alone. Like all anarchists, Friedman objects to the existence of the state, which he says is distinguished from a criminal gang only by the psychological fact that “most people treat government coercion as normal and proper” (Friedman, 1976, p. 107).

In Friedman’s view of anarcho-capitalism, individuals would be free to form their own communities with like-minded others, granting access to these communities only to those who share their vision of the good life. Those who wish to live lives based on faithful adherence to some doctrine (religious or other) would be entitled to do so. Alternatively, those who wished to live in more communal forms of anarchist society (such as those described by Proudhon or Kropotkin) would also be entitled to do so.

In a sense, therefore, there isn’t one anarcho-capitalist society, but a multiplicity of them. What is crucial, however, is that no individual or group has the power to force others to engage with them. Relationships between individuals, and the relationship between the individual and the group, would all be determined contractually. Should disputes arise, they would be settled by arbitrators (in much the same way that disputes about the particulars of contracts between large companies are currently settled).

Now, imagine that one of the parties (A) fails to do what the arbitrator has determined they must, for example, pay B a certain amount of money. What happens next? This is where enforcement agencies come in. In an anarcho-capitalist world, enforcement agencies would sell protection to clients. Should A not pay B what the arbitrator has determined they must, B’s protection agency would attempt to recover the goods from A. Now, imagine A has a protection agency too. Now we have a dispute between two protection agencies, which would have to be resolved contractually between them (in much the same way that insurance companies currently resolve disputes between them).

Perhaps the best fictional illustration of the anarcho-capitalist ideal can be found in Ayn Rand’s novel Atlas Shrugged (1957). Set in a dystopian version of the USA, the novel follows Dagny Taggard, the heiress of a transcontinental railroad operation, who struggles to keep her business afloat during an economic depression. As economic conditions worsen and shortages become more pronounced, the government passes increasingly intrusive and stifling bureaucratic regulations, which only makes the depression worse.

Against this backdrop, Taggard hears of a mysterious figure called John Galt who is encouraging business leaders, inventors, creative leaders, and artists to strike, abandon their enterprises, and join him in creating a utopian community high in the Colorado mountains: Galt’s Gulch. In Galt’s Gulch, the productive have fled and formed their own community, where free-market principles prevail and those who are enterprising succeed without the need for government regulation. In Any Rand’s words:

“We are not a state here, not a society of any kind – we’re just a voluntary association of men held together by nothing but every man’s self-interest. I own the valley and I sell the land to the others, when they want it. Judge Narragansett is to act as our arbiter, in case of disagreements. He hasn’t had to be called upon, as yet. They say that it’s hard for men to agree. You’d be surprised how easy it is – when both parties hold as their moral absolute that neither exists for the sake of the other and that reason is their only means of trade.”
(Rand, 2007, p. 748)

5. Models of an Anarcho-Capitalist World: Icelandic Commonwealth

As well as illustrating their political ideals through literature, anarcho-capitalists also draw parallels between their vision of a good society and historical forms of social organization that are no longer with us. The most important of these was the period known as the commonwealth period of Icelandic history (930-1262 AD).

The anarcho-capitalist theorist David Friedman argued that the Icelandic commonwealth period was a time of significant socio-economic progress despite the absence of a centralized bureaucracy or a common system of criminal law. Instead of being bound to feudal lords and kings who claim a divine right to rule, Icelandic society was based on a system of chieftainship (known as Godar) which could be bought and sold. All heads of farming families had to belong to a chieftainship, but they were free to swear allegiance to a chieftain of their choice and to change chieftains if they so wished. Chieftains, in turn, had the power to expel unwanted followers.

Chieftains, of which there were about 40, played many of the roles anarcho-capitalists envisage insurance, enforcement, and defense companies would play in their ideal society. Chieftans met to agree on systems of rules and laws, and nominated representatives from their group to act as judges in disputes between persons.

References: 

Friedman, David. (1973) The Machinery of Freedom. Available at: http://www.daviddfriedman.com/The_Machinery_of_Freedom_.pdf

Rothbard, Murray. (2016) The Rothbard Reader. Mises Institute. Available at:

https://mises.org/library/rothbard-reader/html

Nozick, Robert. (1975) Anarchy, State, and Utopia. Basic Books, New York.

Rothbard, Murray.  (2006) For a New Liberty: The Libertarian Manifesto. Ludwig Von Mises Institute, Auburn Alabama. 

Rothbard, Murray. (1998) The Ethics of Liberty. New York University Press, New York

Rand, Ayn. (2007)  Atlas Shrugged. Penguin Modern Classics, London.