Can a Market Anarchy collapse? {Part 1/2}

I find it common, amongst the few statists who have had the opportunity to intellectualize their opposition to Market Anarchy, to see arguments that seek to prove that Market Anarchy would eventually collapse back into a State. I have already debunked the most popular of such arguments: the “restitution imbalance” argument was debunked on my old blog, and Nock’s agency monopoly is debunked in my upcoming book (“But Who Will Build the Roads?”: Market Anarchy Explained).

Arguments of this type take a general form like this:

(1) In an uncontrolled market system, wealth/consumer demand/power would become more and more concentrated in a few hands. We would have growing inequality.

(2) After a certain level of inequality, power would be so centralized that it would become in the interests of the agents that possess that power to establish a State by force.

(3) Therefore, an uncontrolled market system eventually collapses into a State.

Before I get into the the theoretical problems of the argument form, I must first point out that this argument has zero empirical evidence to back it up. This is not a definite objection, as it may well be that a modern Market Anarchy would be subject to different dynamics, although it is unclear how a primitive tribe would be any less vulnerable to the supposed power concentration than a modern society. Also, history seems to indicate that societies can both be Anarchic and have vast inequalities.

No, the empirical data is clear. If we look at the coefficients of inequality (gini coefficients), we find that freedom entails less inequality in a society, not more. And this is not surprising, as the less centralized decision-making power is, the less possibility there is for people to use coercive means to accumulate wealth. When the Roman Empire steamrolled its way into a town, relative equality between all slowly became gruesome inequality between those who worked for the Empire or were its friends, and those who weren’t. This is how all States work.

Premise (2) is also unproven. No State has ever been formed by “concentration of power” within a society. All States have been the result of the necessity for an outside warring group to create organization in order to efficiently extract tribute from a defeated enemy, or the maintenance of the interests of such an organization. Of course, we don’t call it tribute any more, we call it taxation: but the principle is still the exact same as it was thousands of years ago.

This being said, I, once again, cannot debunk the argument form on those grounds alone. We also have to look at its theoretical underpinnings.

Let’s start with (1). Do we have theoretical evidence that a market could collapse into a monopoly due to increasing concentration of power? In a competitive context, monopolies do not occur unless market conditions are extremely unusual, such as a condition where the raw supply available is so low as to sustain but one viable producer.

Keep in mind that, since we are talking about the State, we are talking about the market in governance. For such a market, competitors have a relatively low barrier to entry, and no strict limitations in supply or demand. Therefore there is no reason to believe that a monopoly, or even an oligarchy, would develop. We should expect to see tens or hundreds of thousands of security businesses, communes, private neighborhoods or communities, etc.

Should we observe some concentration? Of course. Even if all producers were equal, it would be unlikely to observe no concentration at all. But all producers are not equal. To put this in simplistic terms, some producers offer products that most people find superior, occupy a busier niche, or just know how to manage their resources better. In short, we should always expect some inequality: however, this does not mean that we should observe a tendency towards greater concentration.

A lot of people are fooled by this argument because they confuse visibility with concentration. Concentration should not be measured on a basis of “how many businesses are prominent” but rather on the repartition of market power and the nature of that market. We must also consider the existence of alternatives. If Microsoft became a monopoly in OSes (at the moment it occupies 85% of OS market share), then we would have no viable alternatives. If McDonalds became a fast food chain monopoly, we would still have plenty of viable alternatives.

To be continued in part 2.

2 thoughts on “Can a Market Anarchy collapse? {Part 1/2}

  1. theconverted August 2, 2007 at 22:21

    Well said Francois. I can hardly wait for Part II. I’d love you to post this to the Left-Libertarian2 list – Tony Hollick is trotting out all the old saws about market anarchism and “Anarcho-Capitalism” being non-viable and collapsing into the state or into despotism.

    Well done.

  2. quasibill August 3, 2007 at 10:48

    I tend to think of states being the result of a group seeking to “lock in” current conditions of inequality, although I have nothing to back it up but some inferential thinking. History seems pretty clear that current inequalities trend toward the mean over longer periods of time, for example, Hilton fortunes tend to produce underproductive, overconsumptive Parises over time, to say nothing of how competition in a free market tends to whittle away profit margins of even the most innovative, productive members of society. (Looking at the results of the industrial revolution in the U.K. thirty years out is a good example – the entrepreneurs that drove the IR, by and large, were all destitute by then).

    To me, states emerge or grow more powerful when those who happen to be on top currently seek to lock in their position against the trials and tribulations of the free or somewhat free market. But they can only do so if the subject populace can be convinced that such lock-in is “in the public benefit”. That would probably be hard to do in a market anarchy.

    I think the hardest critique of market anarchy to overcome is the possibility of “city-states” based upon broadly accepted cultural values. The ultimate example of which is: imagine bible belt, TX (which is a market anarchy at the relevant time). Imagine that Johnny nudist moves into bible belt, TX. Sure, his neighbors can build walls to avoid seeing him lounging in his front yard, but that only goes so far, and besides the costs of building said walls, there are other costs imposed by having them – blocking wind, nice views, perhaps convenient travel paths (presumably, you couldn’t completely wall him off with no opening to a local travel path), etc.

    It seems to me that such a situation could easily (though unjustifiably) lead to a sort of city-state developing, with low level annoyance crimes that are difficult to solve constantly happening to non-conformers, imposing large costs over time to the non-conformer and by extension, any PDA they subscribe to, leading to some sort of settlement by “moving away from the nuisance”, possibly including a payout by the PDA and possibly including a deal with community to pay to encourage the move.

    I don’t think this would be widespread in market anarchy, and is more likely in less metropolitan “cities” than in someplace like NYC, but I don’t think you can rule it out. Over time, though, I’m not even sure it’s such a big deal, because the end-result will be similar to a truly voluntary community established through contract (if one accepts Rothbardian contract enforcement, albeit one established by injustice of some level). Just to be clear, I’m not endorsing such, just that I think the scenario is hard to refute out of hand.

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