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Against the IFP

Centralizing control over a currency’s infrastructure is a seemingly obvious mistake.

One would think any Austro-libertarian worth their salt would be able to see thru such a charade. Yet here we are, again. Face to face with economic illiteracy. Not garden variety lefist economic illiteracy, but one far more stinging and painful - one which comes from within our own community, rather than from without. 

First, Bitcoiners faced the economic illiteracy of maximalism and small blockers. Attempts to masquerade money’s primary function as value storage (Ammous) or rejecting Menger’s Regression Theorem altogether (Szabo) are luckily demonstrably false. Nevertheless, the shock of our fellow Bitcoiners illiteracy was like an unexpected slap in the face. Suddenly, we were forced to confront the fact that the ignorance of our allies in the fight for sound money, had led them astray. Yet, thru BCH we were thankfully able to keep Satoshi’s dream of peer to peer cash intact. 
Well, crypto anarch…

Is Anarchy a Faustian Bargain?

The common perception of Anarchy today appears to be one of chaos and destruction. Without the State, it is proclaimed, violence would immediately ensue; without law, there'd be no deterrent disincentivizing this, and we'd return, in the words of Thomas Hobbes (1660), to an age where "every man is Enemy to every man", and "the life of man, solitary, poor, nasty, brutish, and short." But is this really what by necessity would result from abolishing the State? I've previously forcefully argued against the theoretical foundations of the State (Kløvning, 2019a), and although my premises were not disputed, the conclusion of dismantling the State provoked many consequentialist concerns of what could happen if actualized. The central question that must be answered to address such concerns is whether the substitution of Anarchy for a State would possibly be undesirable despite the former having more of a rigorous and defensible logical foundation than the latter.

A classic parallel to this problem is J. W. Goethe's Faust, where the main character Faust trades his soul to a demon in exchange for "otherwise unattainable knowledge and magical powers that give him access to all the world’s pleasures (Faustian Bargain, 2019)." The concept of a "Faustian bargain" derived from this story is accordingly defined as "a pact whereby a person trades something of supreme moral or spiritual importance, such as personal values or the soul, for some worldly or material benefit, such as knowledge, power, or riches." Applied to the Anarchy-State dichotomy, the tradeoff is between security and liberty. Is Anarchy thus a Faustian bargain of giving up security in exchange for the promise of the wonders of liberty?

The American founders understood the tension between security and liberty more than most. Benjamin Franklin asserted that "They who can give up essential liberty to obtain a little temporary safety, deserve neither liberty nor safety (Franklin & Bigelow, 1904)." Similarly, Thomas Jefferson wrote, judging between a system of (1) no government, (2) a government where "the will of every one has a just influence", and (3) a government of force, that he saw the first as "not the best" and that he believed it to be "inconsistent with any great degree of population," while,

The mass of mankind under [the second system] enjoys a precious degree of liberty & happiness. It has it's evils too: the principal of which is the turbulence to which it is subject. But weigh this against the oppressions of monarchy, and it becomes nothing. Malo periculosam libertatem quam quietam servitutem [I wish rather for perilous liberty than peaceful servitude]. Even this evil is productive of good (Jefferson, 1787).

It is to no surprise that those who set out to establish a government didn't perceive Anarchy as practicable, and it's a great irony of history that the country starting with the smallest government in history gradually became one of the largest (Kløvning, 2019b), but the degree to which this tradeoff is emphasized is rather notable. Patrick Henry asserted even more forcefully:

Is life so dear, or peace so sweet, as to be purchased at the price of chains and slavery? Forbid it, almighty God! I know not what course others may take, but as for me, give me liberty or give me death (Colonial Williamsburg, n.d.)!

The two central questions are thus as follows: (1) is there a tradeoff between security and liberty in the Anarchy-State dichotomy; and (2) if there was, which system would be the most ethically and logically defensible? The first question is what will be primarily discussed here, as the latter has already been reflected upon somewhat in Kløvning (2019a) and Kløvning (2019c).

The notion that there is some tradeoff between security and liberty has an intuitive appeal. As the government grows in scope and influence, the laws become more numerous and the enforcement thereof more comprehensive. The citizens will then have the opportunity to utilize the service of the State police to protect themselves against those harming the former's bodies and property, and the courts to work out civil disputes. This also means, however, that the people are increasingly restricted in terms of what they can do or not. Additionally, to finance the State police, courts, and its other programs, it extorts the citizens through taxes they have no choice but to comply with.

It's also by no means clear that State law would overlap with some objective morality. I will not here delineate or apply natural law theory to the matter, as done by Rothbard (1982), but for our purposes here suffice it to say that the politicians and bureaucrats have their own personal interests and have not received their commandments straight from God like Moses supposedly did. Accordingly, there will be unjust laws, and the State could thus become a threat to their own citizens, severely violating their security. The philosopher Spinoza said, for instance, that "He who tries to determine everything by law, will foment crime rather than lessen it." This is especially the case in third-world countries, but as I've documented in-depth previously (Kløvning, 2019d), it also applies to a significant degree with the United States. In the European country of Georgia, the corruption of the police force was so severe following the collapse of the Soviet Union that it was disbanded completely on a national scale in the Rose Revolution of 2004 (Stringham, 2015: 135). According to Edward Stringham, a local Georgian told him afterward that "I did not notice any difference in crime, except I actually felt safer because I did not have to worry about being robbed by the police."

It seems, then, that there isn't exactly a perfect negative correlation between security and liberty in all circumstances when it comes to the laws imposed by the State, so what may the relationship between them be otherwise? In Private Governance, Edward Stringham (p. 197) applies the law of diminishing marginal returns to answer this question, illustrating graphically how the net benefits changes with the number of rules:

The law of diminishing marginal returns says that "adding an additional factor of production results in smaller increases in output (Kenton, 2019)," and Stringham points out that this applies with the number of rules as much as other things, reducing the marginal benefits and increasing the marginal costs as the Federal Register grows. A new law or regulation will generally have less of a marginal (i.e. additional) benefit than the last one, and at one point the quantity may become so great that a net loss is incurred. The key, one may argue, is to be at the peak of the curve.

Going back to the question of the viability of Anarchy, does this mean that it would only be superior to a government in the cases where the laws and regulations have compounded to the degree that a net loss of rules is incurred? Only if one assumes that there are no rules under Anarchy, which is a common belief, albeit misguided. Even if there were no laws or rules at all in a given Anarchistic society, the residents could arm themselves as they pleased without being bothered by restrictions imposed by a government, and they would thus have the opportunity to acquire security by protecting themselves and their family in that sense.

A lot of literature has, however, been dedicated to explaining and delineating how Anarchistic societies theoretically can and historically has developed rules and security. For example, as Morris and Linda Tannehill (1970) have suggested, people could purchase private security services from firms willing to offer such, and "Conflicting claims would be settled by bringing them before private arbitration agencies for binding arbitration." This means, in short, that substituting Anarchy - in the real sense of the term - for a State would not mean having no security, but on the contrary to have competition in security and arbitration rather than a monopoly. A lot of objections may be levied against this position, questioning the viability thereof, but as we'll see below, the Tannehills and others tend to have thought well through most of these.

What makes the actions of the private security firms "legitimate"?

Assuming as a starting point that self-defense is permissible to fend off someone aggressing against one's body or property, one could also justly delegate this right to another (i.e. the private security firm) to act on one's behalf. One could opt out of the service and the costs thereof if one didn't consider them to act on one's behalf any longer, or if the costs ended up exceeding the benefits. None of this is the case with State security, where their "authority" and "legitimacy" is derived from the delegation of "rights" that the voters don't have (i.e. to aggress against people through extortion, theft, kidnapping, murder, etc.), and not paying one's premiums through taxes is met with violent aggression rather than no longer being able to receive a service like State security.

What if private security firms become corrupt and violent?

Private security firms, may, like State security, become corrupted and end up acting against the interests of the clients. There are reasons to believe, however, that this would be far less likely to occur with the former than the latter. State security is a monopoly, and one can thus expect by applying economic theory on the issue that that'd lead to higher costs and lower quality (Kløvning, 2019e). On the contrary, under Anarchy, private security firms would be competitive, and one would accordingly be able to choose a different one if the costs turned out to outweigh the benefits. If a firm tried to start operating as a State, for instance, by demanding the premiums be paid whether one wanted the service or not any longer, and aggressed against people rather than just enacting the act of self-defense delegated to them, this could severely harm the firm's reputation as it would not be seen as "legitimate" like the State has managed to make people believe. Other private security firms could then be hired to fend off such an aggressor, whether they purport to represent a private security firm or just a lone burglar.

How would arbitration agencies develop their "laws" and how would their decisions be binding for its subjects?

In an Anarchist society with competing security firms, they could come into disputes in cases where the firms of the alleged victim and perpetrator respectively disagree on the guilt/innocence of the accused and/or the punishment suggested. To work out this disagreement, they could agree upon a third party - an arbitration agency - to hear out the argumentation on both sides and make judgments accordingly. The "laws" of that arbitration agency may have been developed by some professional jurists, likely taking a basis in the social customs and moral code of the society/community in general. The Tannehills contend (p. 56),

The free-market arbitration agency, if it wanted to stay in business, would have to make as fair a decision as it possibly could. Both disputants would then be impelled to abide by the arbiter's decision, since a man who contracted to abide by the results of arbitration and then broke his contract would be announcing himself as unreliable, and no one would want to risk having any business dealings with him.

A corrupt arbitration agency would tend to eventually, as with the private security firm, go out of business if it ended up acting against the interests of its clients, as they could just go over to a different one with a better reputation. If the parts in a dispute had already agreed upon an arbitration agency they considered relatively just and independent, a part ignoring the judgment afterward would likely have his reputation severely damaged. Theoretically at least, it'd still be possible to make an appeal to review the decision, although that'd naturally cost more and take some time, so it'd be a risky move unless he and his arbitration agency were certain that the judgment was grounded on serious errors which a different arbitration agency likely wouldn't make.

It is thus established that an Anarchist society may develop its own rules spontaneously based upon generally accepted customs and morality, and have at least theoretically the potential to better maintain the number of rules where the peak of net benefits is than the State. This is illustrated graphically below, showing competition keeping individual security firms and arbitration agencies in check whereas the incentive structure behind the State encourages continual growth in rules and regulations although the benefits for the public would be increasingly insignificant if not negative. While the private firms would seek profit and fear going out of business if operating less optimally than their competitors, the State would acquire more power and control by increasing the number of rules, without any competition keeping it in check.

For reference, the increase in the number of pages in the United States Federal Register between 1936 and 2017 is presented below, showing with few exceptions that the number of rules has historically tended only to increase, with few exceptions (biggest decline with Ronald Reagan in office throughout the 1980s). I consider it fair to say, then, that the United States has far exceeded the number of rules with a peak net benefit, and that there isn't much reason to be optimistic that it will level itself back to that in the near future.

This trend is somewhat dependent on the culture, the degree of corruption, and checks and balances in different countries. We can clearly see this with the ongoing massive protests in Hong Kong against the proposed extradition bill, which would "transfer fugitives to any jurisdiction that Hong Kong lacks a formal agreement with, including mainland China (Lum, 2019)," and thus "be exposed to China's deeply flawed justice system, and it would lead to further erosion of the city's judicial independence (Li, 2019)." Even with hundreds of thousands to millions of people protesting the bill, however, it may not influence the outcome much, as the authorities would have the final say anyway, and we've seen how the Hong Kong police have repressed these protesters so far. If all or most of those protesters rather simultaneously decided to stop paying taxes as a method of rebellion it would likely have much more effect, given that the authorities would have their finances severely hurt.

The historical contrast with Anarchist security naturally have a lot less documentation than with a State, but a prominent work is the anthology Anarchy and the Law, which include essays and excerpts on how such institutions developed spontaneously in Medieval England, Celtic Ireland, the Commonwealth of Iceland, the so-called "Wild" West, and more primitive societies (Stringham, 2009:538-680). Although these cannot be said to be "perfect" examples of free-market Anarchism, they are intriguing cases to get a glimpse of how it might work in practice, and it turns out based on the documentation of Stringham and others that it would be a whole lot better than Hobbesians would expect

The case of Somalia is also one which I've followed for a while, previously arguing that the culture and the political stability before the dismantling of the State have an impact on the results (Kløvning, 2019f), but later figuring out that there's reason to believe that the nation fared a lot better in its Stateless period than when it had a State (both before 1991 and after 2000) (Kløvning, 2019g). Jeff Berwick (2018) also visited the country, finding much political influence from foreign governments, the World Bank, and the United Nations. The locals told him that "countless other governments and the UN have been moving in trying to take over the area in one way or another. The United Arab Emirates and Turkey apparently being two of the biggest ones with the largest military bases here." Suffice it to say, Somalia isn't very anarchistic, and its historical experience and remaining elements of it appears to have made things better rather than worse.

Based on the argumentation above I will conclude that substituting Anarchy for a State is not necessarily a tradeoff between liberty and security, but may actually achieve far better and cheaper security than previously. If assuming Anarchy as a starting point, meanwhile, instituting a State would severely reduce liberty without necessarily "fixing" some alleged problems under Anarchy (or if so add on more problems as a side effect). Advocating the ultimate manifestation of liberty - Anarchy - is not a Faustian bargain, but advocating for a State is. Going back to the definition of a Faustian bargain, liberty can undoubtedly be said to be "something of supreme moral or spiritual importance", and taking that away from people in order to obtain a promised "safety" by a central authority at the expense of others in return matches that definition almost perfectly. The implementation and legitimatization of the State was mankind's deal with the devil, and people have for thousands of years suffered the dire consequences of this myth of authority. The alternative path we may instead move towards is clear, and we may thus begin acting to actualize that and make the previous model obsolete.

Written by Stefan M. Kløvning and republished with permission from his blog MisesRevived.

Written by Stefan M. Kløvning and republished with permission from his blog MisesRevived.


Berwick, J. (2018). They Said "If You Want Anarchy, Go To Somalia" — So Here I Am. Retrieved from

Colonial Williamsburg (n.d.). "Give Me Liberty Or Give Me Death!". Retrieved from

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Franklin, B. & Bigelow, J. (1904). The Works of Benjamin Franklin, Vol. VII Letters and Misc. Writings 1775-1779. Retrieved from

Hobbes, T. (1660). The Leviathan. Retrieved from

Jefferson, T. (1787). To James Madison Paris, Jan. 30, 1787. Retrieved from

Kenton, W. (2019). Law of Diminishing Marginal Returns. Retrieved from

Kløvning, S. (2019a). The State as a Business and Incentive Structure. Retrieved from

Kløvning, S. (2019b). Why the State Revels in Crises. Retrieved from

Kløvning, S. (2019c). Why is Liberty the Noblest of All Values?. Retrieved from

Kløvning, S. (2019d). The Growth of the American Police State. Retrieved from

Kløvning, S. (2019e). Hoppe on the Problems with Democracy and the Monopoly of Force. Retrieved from

Kløvning, S. (2019f). What the History of Somalia Can Actually Tell Us About the Practicability of an Anarchist Society. Retrieved from

Kløvning, S. (2019g). Life Expectancy Grew Almost Twice as Fast in Somalia’s Stateless Period as Its Historical Record With One. Retrieved from

Li, J. (2019). Hong Kong-China extradition plans explained. Retrieved from

Lum, A. (2019). Hong Kong extradition bill explained: how did we get into this mess and what happens next? Retrieved from

Rothbard, M. (1982). The Ethics of Liberty. Retrieved from

Stringham, E. (Ed.). (2009). Anarchy and the Law. New Jersey: Transaction Publishers.

Stringham, E. (2015). Private Governance. New York: Oxford University Press.

Tannehill, M. & Tannehill, L. (1970). The Market for Liberty. Retrieved from


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