Private Security Production Dilemma

Economics Political Theory
1

First, if this topic has been covered, please let me know. I tried searching, but I either didn’t phrase it correctly, or it was buried too deep.

The background for the following problem comes from Hoppe’s The Myth of National Defense, and the variety of work that Block has produced re: wage rate arbitrage under racism.

I had been reading Myth, and I was struck by the power of many of the arguments for the evolution private security, and the arguments for why it should be superior, and how it is a legitimate market phenomena (Block’s chapter in particular, but then, I’m a huge Block fan).

Suffice it to say, that by halfway through the book, a nagging question began to form in my mind, which was: if private security is so great, then why don’t we have it?

About that point in my reading, I encountered what I will call the “apology” chapter which tried to explain this very phenomena.

That chapter, to me, was wholly unsatisfactory. It attempted to explain that the reason for our lack of private security was because of a lack of ideological knowledge in the market of ideas. As in our modern parlance, that we lacked a meme viral enough to convince everyone of this. That once this ideology was sufficiently dispersed, we would voluntarily switch to private security production.

But, I mean, come on. It’s a whole article expanding the more succinct phrase “and then the people will rise up and revolt”. This argument has been used by so many martyred revolutionaries that it’s a complete joke. The whole point of free-market theory is that everyone acting in their self-interest results in market efficiency. We don’t have to rely on ideology. The market just works, like gravity. Any defense of the market in this manner is akin to arguing that we can all flap our wings and fly if everyone gets on board and just wishes hard enough.

As Dr. Block has pointed out regarding wage disparities, the ideological components, that is the consumer preference for some market-inefficient result, does not have any bearing on the market outcome. His example, as I said, is racism in wage pricing. For those unfamiliar with the argument, it goes as such: if employers choose to discriminate against some class, then some employer will revolt because they will choose the arbitrage opportunity of below-market-wages over their preference for discrimination. Because of this, the wage rates of all classes will reach equilibrium, despite consumer preference for discrimination. We can then say that the same argument holds for the weaker class of “regardless of consumer preference.”

The general argument is that the free market finds price equilibrium (and hence efficiencies) regardless of consumer preference. So where is private security as a dominate market force? Either the theory is correct, and free market forces dominate, or something is wrong. If consumer preference for public security can hold over the free-market here, then why can’t it hold in the case of discrimination? Shall our free-market theory hold for everything except private security? How and why could we exclude this?

This led me down a very dark path. Either there was an exception to free market theory for security production, or the free-market theory was wrong. Rothbard points out that a theory that doesn’t work in practice is no theory at all. And here, the theory clearly isn’t panning out.

I tried to think of it in a couple other ways. For instance, what if the market equilibrium is government security production. That is, despite our aesthetic appeals to the contrary, the government is the most efficient producer of security? Again, the only justification for this would be that somehow consumer preference dominated market forces. This is further defenestration of our theory. Unsatisfactory.

Well, then I considered that there are many market operations that are handled by the government, and our market theory still holds. For instance, private road production is (or should be…) more efficient than public road production. Where are the private roads? Well, we can point out that the government has leveraged it’s monopoly power to distort this market. The same argument applies to all other cases of market distortion.

But that argument can’t apply for security production. The reason the government can distort the market in other areas is because they have a monopoly on violence. But to say that we can’t produce private security because the government is too violent, is self-contradictory. It fails the self-argument test. The government violence argument works in every case except the case of private defense against government violence.

This is very bad from a free-market theory perspective. If our theory cannot support itself in practice in the most important area, then what theory is it at all?

Before I conclude with what I think is the answer (or if anyone is even interested…) to this dilemma, I am looking to see if there are simpler holes in my argument here. Have I misunderstood the role of free-market arbitrage in consumer preference? Something else?

2

you are confusing yourself. quote:

The general argument is that the free market finds price equilibrium (and hence efficiencies) regardless of consumer preference.

yes, this is true and is not falsified by the current environment. where is the free market as far as private law and defense is concerned?. answer: the market is not allowed to exist because of laws prohibitng it,

so its silly to ask why private companies arent a dominant supplier of defence. the answer is in the’setup’, they arent allowed to compete. for evidence, try starting up your own legal court and see what happens.

anyhow; so far as private solutions are legally offerable, they are dominant. e.g. padlocks on doors, security companies, abritration companies, etc

3

further, on this:

As Dr. Block has pointed out regarding wage disparities, the ideological components, that is the consumer preference for some market-inefficient result, does not have any bearing on the market outcome.

but they prefer the market inefficient result, through their ignorance of the fact that it is the innifficient result.

example. if people are wrong about what healthy food is and, miscategorise healthy for not healthy and vice vera, then companies offering unhealthy food will outcompete the healthy. if people wrongly think public defence is itself superior to private defence they will support and get the inferior product.

they have contradictory desires (to have a good defence product, to have a public provided defense product), so long as they seek the latter they wont get the former, even as they try to get for themselves the former.

4

So, I think I addressed both of these arguments.

In the first response, the only reason the market does not or cannot dominate in certain areas is because of government intervention. The government can intervene because they have a monopoly on violence.

However, the production of private security is theoretically superior to public security. The argument that private security cannot flourish because government violence is too great cannot hold, if our market theory holds. This constructs a recursive argument with no bottom, and so it fails the self-reliance test (Hoppe).

As to the second item, I believe arbitrage in the free market would overcome a poor consumer preference. This is the same argument that results in superior environmental results from the free market. Public welfare is closely aligned to profit motive, even if the preferences of customers diverge from public welfare. So, in a free market, someone would offer actual health food (the same way both are offerred now). Even if no one wanted it to speak of, it would eventually become clear that the unhealthy (labeled healthy) food was causing problems. Either because the unhealthy vendors (healthy vendors) ended up with medically more sound customer base, or by some other action.

5

what can grow to a greater height, a tree of a flower? yet if all trees are cut down by the axe, you will look around and only see flowers. hence for you flowers grow taller than trees.

we can say that private security is at least not worse than public security when faced with the monopolized violence of public security.

because although private security can often struggle to be effective against State institutions,

so public security struggles to be effective given the predations of state insitutions against the property of private individuals.

i.e. yes my DefendCorp company, hasnt been effective against stopping robbers and taxmen from stealing from individuals.

yet neither does the police force of your town do a good job of keeping the IRS off your back.

6

I like your first point that private security is at least not worse than public – but I think the theoretical arguments propounded in Myth indicate that private security is far more effective the public security.

For instance, there is a theoretical domenstration in a chapter by Hoppe which describes assymetric warfare: current empirical examples of extremely effective assymetric warfare include Afghani’s & Iraqis vs. the US, Hezbollah vs. Israel, and to a lesser extent the Hutus vs. the Tutsis during the post-genocide years.

We see other examples of the market taking control of certain traditionally public venues, such as private security firms (pinkertons, et al), gated communities, contractual binding arbitration. But these seem to be a result of the massive ineptitude of the government (I refer here to the US government…I can’t speak to others).

The market theory implies that private security production must be more efficient than the public monopoly of security. A monopoly, regardless of it’s form, will have deadweight loss.

The DefendCorp example is pertinent; a private security firm that is no good at keeping you safe will be very short for this world. In this respect, government violence agencies should be defeated by private security forces; if they are not, we need some internally consistent mechanism within the market theory to explain this.

For reference, I’m assuming the free market theory is the one based upon Man, Economy, and State.

7

I would say that private defence on market terms and so-called national defence are not homogeneous goods. If they were really comparable, private firms would flourish relative to the state. The basic difference is that of free association and forced appropriation. In these circumstances, of course the State wins out!

8

I think the main point of the book Myth, which I agree with, is that there should be some private security firm which is capable of producing national defense. Homogeneity of goods is only pertinent when determining the monotonicity of marginal utility. Non-homogeneous complements can compete for the same resources. For instance, the market for hydrogen-filled zeppelins is a complement to helium zeppelins. But clearly, we wouldn’t say that helium zeppelins are superior because they are not homogeneous goods. With respect to the need fulfilled, private security is more effective than national public security (interior and exterior). They should be natural rivals (and in many ways, they are), and as rivals, private security should be able to push public security out of the market.

I believe my conundrum still stands.

9

even though individuals would benefit from their defense being delivered privately, they support public production of security because they dont undestand economics and so they are subsidising public security. they are getting what they think they want, if they were better informed they would want private security, and then public security could not hope to outcompete it. block was entirely right about the ‘revolutionary’ aspect. its no more than the revolution of discovering that what you mistook for unhealthy food is truly healthy food for you, and realigning your values with that.

10

by way of another metaphor, an ant may be able to lift/push/fight far in excess of other competitors in its weight class, but an elephant can still step on it.

11

All oher things being equal, private would push out socialized. But things aren’t equal, As was explained: governments outlaw or heavily regulate any private “rival” service provider. Also, the majority of people either accept or have no problem with there being a government because they are taught that no government = chaos and destruction.

12

This implies that consumer preference can dominate market efficiency. If this is true, then Block is also wrong with respect to wage rates under racism. It also implies that the market can ignore the pricing mechanism for the production of goods and services. But I think Mises showed pretty clearly that the pricing mechanism is the only method by which the market can communicate.

This applies to the previous comment regarding the ant/elephant metaphor. It makes no difference how big the government is–it cannot be larger than the market from which it takes it’s taxes. Hence, if security is provided more efficiently than the government, then private security should generate enough profit to drive government out of business.

This is only true if the free market theory holds true.

I will tell you all that all of these things that you have said (with one exception above) ocurred to me over the course of a few weeks. It had me very worried that there was some flaw in the market theory itself. The solution I settled on was frrom the beginning of Man, Economy, and State:

So, in this one case, it is sufficient to say that consumer preference might trump market forces.

Personally, I believe the issue is that society does not yet have the capital goods structure necessary yet to produce private security which can overcome public security (Hoppe’s subtle call to arms aside). This is similar, in my mind, to the 17th century accountant knowing that he will be more efficient with some form of automatic accounting, but having no discernible knowledge of the capital structure required to design and produce a personal computer running spreadsheet software. I think in the same way, we can look forward, and know that some sort of social structure such as indemnification organizations (insurance, friendly societies, etc.) will one day free us from public security; but, despite the clever rhetoric in Myth, we have no way of discerning the ultimate structure of capital or products that will arrange this.

[edit: one more remark; grammar]

Anyways, I found it curious that there is this obvious flaw in the Austrian market theory–that basically, no one (that I have read) has tried to formulate a praxeological theory of free market vs. hegemony.

13

but consumer preferences are market forces.

I think what Block is saying is that market forces (i.e. consumer preferences) will trump supplier preferences.

For example, if whites prefered not to deal with blacks at all, then it would not be beneficial for an employer to hire a black worker, even if he could be more productive that white workers. The entire goal of an entrepreneur is to meet consumer preferences.

On the other hand, if it is the employer who is racist, but the consumers aren’t, or they care more about getting the lowest price, then arbitrage will force employers to hire blacks, regardless of their preferences, or lose business.

In the same way, if no one wants private security because they think that without the government there will be chaos, you can’t just start a private security firm and expect that customers will choose you over the government, especially when it would probably mean eventually defending them from the government.

14

i think your problem is in this sentence, where you seem to have two ‘forces’

Consumer Preferences and Market Forces,

and you imagine them duking it out

this is wrong.

Block’s point is that racism, where employers may or may not be racist, but consumers are not racist, will under a free market, punish the racist employers by loss of profit, and reward the superioir entrepeneurs who are correctly judging consumer demanand are judging that the race of their employees is not a factor)

if consumers will pay many times over to get an object that has never been touched by someone of some other race, then of course, the market would look quite different. a lot of people who say racist things ( because talk is cheap) actually demonstrate indifference to the race of their suppliers when they have to pay for the priviledge of being choosey. the benevolence of the market is that you have to pay the price to be as choosey as you are.

15

not just consumer preference.

consumer preference + state intervention / cost of investment in order to compete

in the descrimination example, the state does not outlaw the hiring of specific races.

16

I’ve had many of these same thoughts.

I think we’re just getting outcompeted right now. As you said, the “government is violently preventing competition” argument doesn’t hold water when we’re talking about security. That’s what private security is supposed to do, protect us against violence. If it’s not doing that, then it’s not doing that.

Most of us believe that the government has inherent problems (economic and otherwise) that generally result in it screwing up anything it touches. Why then, do we think it’s a virtual impossibility to find a way to compete with it? Is the state more competent and creative then we are?

When we complain about the government (and I’m just as guilty as anyone else) we’re no better than the guy who compains about scientists not having cured the common cold. The devil’s in the details. It’s up to us to get the ball rolling and take meaningful action. The whole “let’s get rid of government and leave it up to the free market” meme needs to be replaced with “let’s outcompete government and create a free market”. We’ve already had anarchy, many many times in the past. Yet we’'ve seen the state take power time and time again. Simply getting rid of the state doesn’t give us the anarchy we want. Creating the institutions that we envision as a piece of the free market does.

This is a great example of the type of thing I’m talking about: http://libertarianpapers.org/articles/2009/lp-1-12.pdf

17

If the Internet is so great, how come it was only invented in the 90’s, and not a thousand years ago?

Or, if slavery was so bad, how come it existed for most of history?

Or, if geocentrism/flat earth/phlogiston was so wrong, why was it once a popular theory?

Perfect rationality is not a realistic assumption.

Well, yes we do. For instance, if everyone rejected private property, the market wouldn’t work.

18

But it does. That’s what governments DO! They are COERCIVE expropriating territorial monopolies. So of COURSE they will prevent competition.

19

This point seems to be operating under a false assumption, namely that humans, through history, achieve the optimal state of affairs (something that some have indeed argued). Once we realize that this is a fallacy, we no longer have any problem to solve here. While it might be interesting to investigate why we don’t have private production of security, we need not worry that not having it means something bad for the idea.

If private production of automobiles is optimal, why did the East Germans have the trabant?

If private production of food is optimal, why did the Soviets have only 3% private farmland?

If a good mix in the passing game is optimal, why does Ohio State continually ignore the tight end and run only sideline routes?

20

Of course the government is violent and of course it prevents competition. That’s not what I’m talking about. I’m talking about what we can conclude from those facts.

The default condition of mankind is anarchy. To put it biblically, the Adams and Eves across the globe weren’t born into government. They had anarchy. We’ve also had anarchy after various government collapses.

If government is pervasive and government is violent, then don’t you see the problem in the statement that anarchy (the free market), by default, protects us against violence? The undeniable fact is that throughout history, the free market has been unable to protect us against violence (the emergence of government).

And as much as it might seem like I’m knocking the free market, that really isn’t the case at all. I want a free market and I believe that eventually we’ll get it right. I just think that a common belief we have is holding us back. That is, that all we need to do is get rid of that state and everything will work itself out. I’m saying that we need to outcompete the state and replace it or another will emerge after its collapse.