The Fallacy of the Anarchist Order

Yes, a Capitalist Anarchy Can Be an Equilibrium, But It Is Unlikely To Be a Good One

You can read on the Substack blog Ethics Under Construction a very thoughtful and well-argued review of David Friedman’s book The Machinery of Freedom.[1] Even if you’re not particularly interested in libertarian philosophy and economics, I warmly recommend reading the review as it makes many nice points about the nature of ideal versus non-ideal theory and the role of assumptions about human behavior in political philosophy and social sciences.[2]

I’ve not read myself Friedman’s book, though I have some familiarity with libertarian arguments for “anarcho-capitalism.” Indeed, while reading the review I had flashes of thoughts I developed more than a decade ago when I was a regular reader of libertarian texts and forums. Since this period, I’m convinced that anyone who comes into contact with libertarian philosophy will pass through three stages – though some stop at the second:

1.      An initial puzzlement and general skepticism if not disbelief in the face of ideas that seem completely crazy and contrary to our well-considered (philosophical, political, economic) intuitions.

2.      A revision of one’s priors under the effect of the logical strength of anarcho-capitalists’ arguments and their ability to effectively target all the problems with democratic capitalist societies based on a welfare state.

3.      An ultimate rejection of libertarian ideas, at least in their most extreme variants that directly lead to anarcho-capitalism, that follows a careful examination based on up-to-date social scientific knowledge and reasonable philosophical considerations.

Arguably, only open-minded and/or curious persons will pass the first stage, for libertarian ideas severely contradict most people’s intuitions – as it appears, few persons have libertarian intuitions, at least in the West, which is not surprising given our historical, cultural, and political background. While some persons stop at stage 2 and become libertarians, the large majority of those of us who give minimal thought to libertarian arguments will ultimately reject them – they are not in reflective equilibrium as some would say.

Many considerations lead to the rejection of libertarian ideas in stage 3. The review of Friedman’s book I referred to above exposes several of them. I would like to mention a related but still different one that applies to those anarcho-capitalists who, like Friedman, are at least seriously trying to show that a capitalist anarchy could be feasible and well-functioning.[3] This is the tendency to conflate the demonstration that an anarchistic equilibrium exists with the claim that capitalist anarchy is vindicated.

I have found this tendency in the writings of many libertarian authors (especially economists). It is most systematically visible in the writings of Peter Leeson, an economist at George Mason University. I must indicate at the outset that Leeson’s work is both insightful and enjoyable to read.  A large part of it consists of very rigorous use of economic logic and reasoning to uncover the mechanisms of coordination and cooperation in case studies of stateless societies or communities. Leeson has for instance extensively written on the economics of “pirate societies”.[4] A characteristic of the work of Leeson with respect to such case studies is to establish that stateless societies had institutions in equilibrium. In other words, using rational choice theory, Leeson shows for instance that pirates were following rules and responding to incentives in such a way that their society, while anarchistic, was not chaotic. More than that, behind these institutions, there was an economic rationale such that the institutional response was optimal given the technological and informational constraints prevailing. In other papers, Leeson applies the same methodology to, for instance, argue that trial by ordeal was efficient.

Note that here two very different things are argued for:

A/ Society S is based on institutions I such that its members implement through their behavior an anarchistic (i.e., not involving state coercion) equilibrium E.

B/ Given a set of constraints C, E is optimal and therefore I can be considered as being efficient in some sense.

If both claims are justified, then we have done a long way toward showing that a (capitalist) anarchy is not only possible but superior to a state-based society. In my view, Leeson’s work convincingly establishes A in many of his case studies. But obviously, A doesn’t imply B. More than that, there is profound ambiguity around the notions of “optimality” and “efficiency”. This is at this stage that the anarcho-capitalist argument becomes fallacious.

A somewhat old exchange between Leeson on the one hand and Daron Acemoglu and James Robinson on the other hand helps to clarify the matter a bit.[5] Acemoglu & Robinson labels Leeson’s approach the “efficient institution view”. This makes sense because, indeed, Leeson tends to postulate that A implies B. While this cannot be a logical implication, the connection Leeson makes between A and B is based on the idea that the efficiency of an institution I is constituted by the fact that it (i) lasts long enough (ii) in the face of various feasibility constraints. Consider for instance these two quotes, respectively from Leeson’s first and second responses:

“Acemoglu and Robinson are right to characterize my view of pirate institutions as efficient. Indeed, I follow George Stigler in regarding all long-lasting institutions as efficient. I’ve tried to defend this perspective in my work, which shows that a wide variety of institutions that seem obviously inefficient—and, indeed, sometimes downright absurd—are in fact, on closer inspection, efficient and not so absurd after all. (See, for example, my research on ordeals, trial by battle, human sacrifice, and vermin trials).”

“Efficient institutions are context dependent. The contexts—and thus costs and benefits of alternative institutional forms—that pirates and their legitimate counterparts faced were different. So it’s natural that efficient institutions in these « societies » would differ too. (…) In every society the “institutional opportunity set”—i.e., range of feasible institutions—is constrained. At least in the short run, a society’s “history” and “cultural” features, for example, limit the institutional choices its people can make. Since history and culture vary significantly across societies, institutional constraints do too. As I’ve argued elsewhere, these constraints suggest that we should think about institutional efficiency in terms of constrained, not unconstrained, optima.”

There are at least two problems with this view. First, what is a “long-lasting institution”? What is the minimum duration for an institution to count as efficient? The case of 18^th-century piracy provides a good example. As Leeson notes himself, it lasted for approximately 50 years. This is really few by all plausible standards. If the life expectancy of anarchy is that low – less than two generations – we may be better off staying with a state even if it illegitimately coerces us. Second, the argument that institutions are local optima under exogenous constraints is not fully convincing because it is not obvious to determine what counts as exogenous. To give an example, if due to their adverse effects on climate and the environment, democratic and capitalist societies are forced to revert to authoritarian subsistence economies, any talk of efficiency seems misplaced, although democratic capitalism has been lasting for more than two centuries and possible future authoritarian subsistence economies for even more than that. Or consider the case of a society whose institutions, while long-lasting, limit technological and social innovations in such a way that general economic and social stagnation prevails, therefore limiting the emergence of new and more appealing institutional arrangements. The bottom is that efficiency is not only a static notion, it also has a dynamic dimension.

The point is that if we want to assess the efficiency of economic and political institutions, we cannot content ourselves with a criterion of duration and second-best optimality under constraints. Very bad institutions can be in equilibrium for a long time and institutional choices at some points in time are likely to partially determine the constraints on future institutional choices. If libertarians want to make a case for a capitalist anarchy, they need to do more than suggest that it can be an equilibrium. This only establishes that anarchy is not chaos. They need to establish that it would be superior, by plausible normative standards, to our current equilibrium. Good luck to them!

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[1] David D. Friedman, The Machinery of Freedom: Guide to a Radical Capitalism, 3e édition (New York, NY: CreateSpace Independent Publishing Platform, 2015).

[2] A more general treatment of this issue is provided by David Estlund, Utopophobia: On the Limits (If Any) of Political Philosophy (Princeton University Press, 2019).

[3] Many anarcho-capitalists content themselves with arguments based on natural rights theory and show that, if one accepts that people have natural rights (as one should), then pure logical reasoning entails the moral impermissibility of state coercion. Needless to say, this kind of pure philosophical and logical defense of anarcho-capitalism is unlikely to convince anyone who is not already convinced.

[4] See in particular Peter T. Leeson, The Invisible Hook: The Hidden Economics of Pirates (Princeton, NJ: Princeton University Press, 2011).

[5] Leeson’s initial and second responses to Acemoglu and Robinson are still accessible. Unfortunately, the two articles of Acemoglu and Robinson seem to have disappeared from the web. What follows is based on an old post I had written on this exchange on my previous blog (in French).