What would happen if the State's monopoly on law was removed?
In this interview with the German-language Business Week, anarcho-libertarian economist Hans-Hermann Hoppe argues for a state-free society. Where government has, for example, no right to compel the citizens to pay taxes to finance armed forces, and where citizens resolve disputes without the interference of a state-enforced monopoly on the law.
Q: We currently have booming state intervention in both the economy and in society again. Many citizens want more government and less market. How do you explain that?
History shows that crises promote the growth of the state. This is particularly evident in wars and terrorist attacks. Governments use such crises in order to pose as crisis-solvers. This also applies to the financial crisis. It has provided the governments and central banks with a welcome opportunity to intervene even more in the economy and society. Government representatives have managed to lay the blame for the crisis on capitalism, the markets and greed.
Q: Without the intervention of central banks and governments in the form of liquidity injections and stimulus programs, wouldn’t the world have been thrown into a deep depression like in the 1930s?
There is a misconception that governments and central banks can aid the economy with programs to help it bounce back. Even in the 1930s in the USA there were economic stimulus programs. But the Great Depression did not end until after the Second World War. In prior years, the U.S. unemployment never fell below 15 percent. The banks were hoarding the central bank money, instead of using it to lend.
The current circumstances are similar. The money is not getting into the goods markets, therefore the prices of commodities barely rise. But that does not mean that there is no inflation. You just have to look at how the stock markets are developing to identify where the money is going. Inflation is taking place on the asset markets.
The boom in the stock markets is also a consequence of negative real interest rates that make saving unattractive …and endanger our prosperity. An economy can only grow if people save more and consume less. Without savings, there are no viable investments.
I’ll give you a simple example. Imagine Robinson Crusoe and Friday on their desert island. If Robinson catches fish and consumes some of them, but not all, he can lend those to Friday who can eat them for a few days, and invest his time in the construction of a fishing net of his own. With this net he can catch so many fish that he can feed himself and to give Robinson the borrowed fish back. Both are doing even better than before. But what happens if Robinson does not save, but eats all the fish himself and gives Friday only a certificate that can be exchanged for this fish? If Friday wants to go to Robinson to redeem the certificate, he finds that no fish is there. Friday must therefore quickly obtain food himself and has no time to finish the net. It remains an abandoned project. The standard of living of Friday and Robinson drops.
Q: What does that have to do with our present situation?
A similar thing is happening in our modern economies. The credit creation out of nothing pushes interest rates artificially down and triggers investments, for which no corresponding savings exist to cover. Given the low interest rates hardly anything is saved, and we consume all the more. Just as Robinson’s fish are not saved, but eaten by him. The increased consumption withdraws resources from investments, projects cannot be completed, the banks cut the loans, the projects are liquidated, the economy plunges into crisis.
Q: Does that mean the next crash is coming soon?
The central banks are trying to end the crisis with even more credit and money, even though this was caused by too much money and credit. Therefore, the next crash will be even more severe than the previous.
The monetary authorities promise to dry-up liquidity in time, before the going gets tough.
Theoretically, this may be possible. Central banks could reduce the money supply by selling government bonds. Only that’s never happened in practice. Because it contradicts the strategy of the central banks to keep interest rates as low as possible …
Q: ...and to produce inflation?
The central banks are trying to save the paper money system by any means. I’m afraid the next step is to eliminate the remaining currency competition through a centralization of money and banking. At the end there might be a kind of global central bank, with a global single currency, into which the dollar, euro and yen are merged. Freed from competition with other currencies, this central bank would then have even more room for inflation. The crisis would not be over, but would return with a vengeance on the global level.
Some economists call for the gold standard in order to tie the hands of the central banks.
Governments and central banks will resist it. As a state monopoly money distributor, central banks have no interest in losing their power. I consider a voluntary return to the gold standard to be unrealistic.
Q: What about China, the country wants to establish the yuan as a reserve currency.
For China, it would be a clever move to back the yuan by gold to push the dollar from the global dominance. With a gold-backed yuan, the days of America’s economic dominance and the dollar would be numbered. The West will therefore do everything possible to prevent China from doing this.
In Europe, governments and central bank have ignored the law and acted above the law, in the wake of the euro rescue. And there was no public outcry in Germany against this.
The Germans allow themselves to be dictated by America as to what they can do and what they must do. America has a vital interest in ensuring that the euro survives because for the dollar it’s a more convenient competitor than 17 national currencies. America only has to turn to one central bank, namely the ECB, in order to enforce its interests with political pressure.
Q: The Euro-bailout and the increasing shift of powers to Brussels cause unease in the population. Have the political elites overstrained the preparedness of citizens for further integration?
States generally have the tendency to centralize their power. In Europe, powers are transferred to Brussels to eliminate competition among countries. The dream of the statists is a world state with uniform taxes and regulations, which robs the citizens of any opportunity to improve their lives by emigrating. Citizens recognize that basically the European Union is a huge redistribution apparatus. This fuels discontent and incites the envy of nations among themselves.
Q: What can we do about it?
For the cause of freedom it would be best if Europe were to fall apart into as many micro-states as possible. This applies to Germany as well. The smaller the spatial extent of a State, the easier it is to emigrate and the nicer the state must be to its citizens in order to retain the productive people.
Q: You want a return to “Kleinstaaterei”, the system of mini-countries of the 19th Century?
Take a look at the economic and cultural development. In the 19th century the area of what Germany is today was then the leading region in Europe. The major cultural achievements came at a time when there was no great central state. The small territories were in intense competition with each other. Everyone wanted to have the best libraries, theaters and universities. This region was significantly more advanced culturally and intellectually than France, which by then was already centralized. All culture in France is focused on Paris, the rest of the country fell into cultural obscurity.
Q: But free trade would be threatened by secession and a return to fragmented nations...
On the contrary. Small states have to trade. Their market is not big enough and they are not diversified enough to live independently. If they are not running free trade, they are finished after a week. However, a large country like America can be largely self-sufficient and is therefore less dependent on free exchange with other states. In addition, small and sovereign states cannot permanently dump the blame on others when something goes wrong with them. In the EU, Brussels is often blamed for all sorts of ills. In independent small states governments would, however, have to take responsibility for abuses in their own country. This has a pacifying effect on the relations among nations.
Q: If small states have their own currencies, that would be the end of the integration of capital markets.
Small states could not afford their own currencies because of the transaction costs. They would therefore strive for a common currency that is independent of and uninfluenced by the individual governments. There is a high probability that they would agree on a commodity money such as gold or silver, whose value is determined in the market. Kleinstaaterei leads to more market and less state intervention in the monetary system.
Q: If Europe were a collection of small states then on the international stage it would have no economic clout next to the large states.
How then do Switzerland, Liechtenstein, Monaco and Singapore manage to be economically at the top? My impression is that these countries are wealthier than Germany and that the Germans were wealthy before they embarked on the adventure of the euro. We should free ourselves from the idea that business takes place between states. Business takes place between people and companies that produce here and there. Economies don’t consist of states competing against states but companies against companies. It is not the size of a country that determines its prosperity, but the ability of its citizens.
Q: Regardless of the number of sovereign territories, the question remains how much government is necessary. Classical liberals suggest the night watchman state, which is limited to securing freedom, property and peace. You do not want any state at all. Why?
The classical liberals underestimate the extent of the state’s inherent tendency to grow. Who determines how many tax-financed police officers, judges and soldiers there are in the night-watchman state? In the market, based on voluntary payments for goods and services, the answer is clear: milk is produced to such an extent and sold at such prices that consumers are willing to pay. However, to the question “how much” the government of any country will always answer: The more money we have, the more we can do. Because they can force citizens to pay taxes, the government will ask for more and more money and deliver a continuously poorer performance. The idea of a minimal state is a conceptually faulty design. Minimal states can never remain minimal states.
Q: But who is to protect property and administer justice, if not the state?
If the state protects property by state police, it requires taxes. However, taxes are expropriation. The state thus becomes an expropriating property protector. And a state that wants to maintain law and order, but can itself issue laws, is a law breaking law maintainer.
Q: To whom do you want to transfer the task of protecting rights and property?
These tasks should be taken over by companies that have to prove themselves in the free market, as is the case with all other goods. Every society is characterized by ownership conflicts. But it need not be the state that it resolves them. Imagine a society without a state. In such a natural order, each person is first of all to be regarded as the owner of the things that they controlled. The suit that you wear, therefore, is your property. To suggest otherwise requires the burden of proof. Conflicts will be settled in such an order by natural authority. In village communities these are the people that are respected by all; they act as judges. If there is a dispute between persons belonging to different communities and who turn to different judges, the conflict must be arbitrated at the next higher level. It is important that no judge has a monopoly of law making.
Q: That sounds pretty unrealistic ….
… but it’s not! Just look at how cross-border disputes are settled today. On the international level a kind of legal anarchy rules, because there is no all-regulating world state. What do the citizens in the border triangle of Basel do, i.e. German, French and Swiss, when it comes to conflicts between them? Anyone can first contact their appropriate jurisdiction. If there is no agreement, independent arbitrators are called upon to decide the case. Are there therefore more disputes between the citizens of this region than between the citizens of Cologne and Dusseldorf? I have not heard of it. This shows that one can regulate interpersonal disputes peacefully, without there being a state as legal monopolist.
Q: A legal system without a state is likely to be beyond most people’s imagination.
Why? Basically, they are easily comprehensible ideas that in the course of centuries were beaten out of us by the advocates of state power. It was an evolutionary error to replace the freedom of the people in the choice of lawmaker by a state monopoly of lawmaking. The latter has led to the result that in general elections sometimes proles come to power who use their legislative power to enrich themselves with the property of those who have more than they do. A clan chief, however, who is voluntarily chosen as arbitrator in disputes, is usually an already wealthy man who has no reason to seek after the property of others. Otherwise he would not be selected as an arbitrator.
Q: How, in a world without the order of the state, would you prevent the infringement of elementary rights of freedom such as the right to physical integrity?
Counter-question: Are such violations currently prevented by the existence of states? There will always be areas where there is murder and manslaughter, as long as humans are humans. Have states improved that in any way? I have my doubts. States are also run by people. But unlike a stateless society, the leaders have a – sometimes temporary – monopoly on their position of power.
Wouldn’t that make them even worse than they already are? Humans aren’t angels but instead often cause mischief and evil. For that reason the best defence of freedom and property is to allow no-one to create a monopoly. As soon as there is a monopoly, it is not angel-like beings that rise up within it.
Q: Let’s say, we followed you and transferred classic state functions such as the protection of property and the case law to private organizations. Then we have the problem that in these organizations too the bad guys assume command and create cartels at the expense of citizens form?
The risk of this happening is low. Cartels can only survive in the long term if the state protects them. Businesses start cartels to divide the market among themselves. This benefits the weak members. The strong members of the cartel, however, can achieve higher market shares outside the cartel. Once they realize this, the cartel breaks apart.
Q: Until then however, the cartel members exploit the citizens.
Now you are committing suicide from fear of death. If you transfer the task to the state, it has from the outset a monopoly that it can abuse to restrict the freedom of citizens.
Q: How do you want to deal in a stateless private law society with the problem of external effects? Who should for example ensure that the causer of environmental damage also bears the costs?
The problem is easy to solve. You have to give the injured party a right of action. Then he can sue the perpetrator of the damage to a compensation payment. In the 19th century it was common practice that citizens sued companies when the latter damaged their property by pollution. Later, the state limited the right of appeal to protect certain industries. It is crucial that property rights are clearly assigned. The basic principle should be: Whoever is there first, gets the property right. For example, if a company sets up a plant with a strong emission of pollutants in the vicinity of an existing residential development, then citizens can sue for compensation. This is a simple principle that even children understand. In the U.S., during the time of the gold diggers criteria were developed without the help of the state by which the miners staked their claims. At that time there were people who registered the claims. This shows that ownership issues can be resolved without a state.
Q: You cannot organize defense without the state, and no one can be excluded from the security that an army delivers. Ergo you need the state to force all citizens via taxes to finance the army.
Who says that all citizens want to be defended? We live in a world of scarcity. Money that is spent on defense is no longer available for other purposes. Some people maybe do not want to be defended, but would rather pay for a vacation on Hawaii. In an attack from outside they would possibly choose to leave the country and need no defense by an army.
The state has no right to force them through taxes to finance an armed force. In a state-free society, people can, if they so wish, create smaller units, such as village communities, and defend themselves or hire private security. They would have the freedom to decide for themselves how they spend their money.
(Translated by Curt Doolittle, Aaron Kahland and Robert Groezinger)
View at source.