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Anarcho-Capitalism and its fallacies

Anarcho-Capitalism is rapidly emerging as the great delusion of our time.

Yet hardly anyone seems to have noticed to the extent of naming and shining a spotlight on the beast. It comes out of the work of Ayn Rand, who invented a philosophy called Objectivism and wrote a novel called Atlas Shrugged. The ideas were then developed by Murray Rothbard, who coined the term, Bruce Benson and David Friedman, amongst others. The defining idea of anarcho-capitalism is that the state should be abolished and that only free transactions in a free market have any legitimacy. An identifying mark of an adherent of this political philosophy is the statement “taxation is theft”, with deification of “the market”. The present generation of conservative politicians appear to be strongly influenced by these ideas, especially in the English speaking world.

Like all ideas which take a hold on people’s imagination, this view has more than a little validity. We in the Campaign would firmly assert that the taxation of human labour is indeed theft. That is an idea that many people feel instinctively. They resent the state grabbing their hard-earned pennies. Experience shows that the public sector tends to inefficiency, with those in charge pursuing their own objectives – such as, for instance, to grow the departments of the organisations and departments for which they are responsible. And only big states have the resources to assemble substantial military power and conduct big wars, thereby engineering the deaths of millions of people. All of which makes the body of ideas that can be described as Anarcho-Capitalism (A-C) seductively attractive. But they are wrong nevertheless.

A-C is underpinned by a grave falsehood which makes it every bit as dangerous as Marxism. This is its understanding of what its adherents call “property rights”, but which in reality are land rights.

According to A-C adherents, land ownership rights come into existence through what is described as the “homestead principle” – that a family can move onto a piece of previously unowned land and, by enclosing and farming it, thereby acquire ownership of a portion of the surface of the earth. The example of the nineteenth century settlement of North America is given as an illustration of the principle.

The first difficulty
is that even in the nineteenth century, the land allocated in this way was not unoccupied but was the territory of the indigenous inhabitants who had a different system of land allocation and tenure.

The second difficulty is that although standard-sized plots were handed out, they were, of their nature, of different quality, by virtue of their proximity to a railway or town, or their natural fertility or other advantages or disadvantages.

The third difficulty is that the A-C theory appears to assume that land remains freely available for settlement in this way.

And the fourth difficulty, and a self-contradictory one, is that this kind of homesteading could only take place under a strong government that would remove the original inhabitants and then issue titles and defend the rights of the homesteaders to keep those titles. The land which was homesteaded became available because the United States Army removed the previous inhabitants. The US government then handed out titles, which were if necessary defended by the same US Army and through the courts if the titles were challenged. A-C advocates hold up as an ideal the notion of the market, as a peaceful and free exchange of goods and services, but the acquisition of land by homesteading was hardly a matter of peaceful consent.

The fifth difficulty, which makes the whole philosophy ludicrous and self-contradictory, is that the state is ultimately needed to defend property rights against claimants from within and outside its borders.

American dream became nightmare

Homesteading was part of the American dream, which could be summarised in the slogan “Go West, Young Man!” The trouble was that the dream ended at the Pacific Ocean, after which there was no more west to go to. The last free land available for the taking was Oklahoma, and that was gone by 1889. A-C essentially harks back to the ideal of this dream. The conditions where it might have flourished are no more. The dream would turn into a nightmare for many.

When all land is enclosed, where does A-C lead? There are those who own land and collect rent, for no effort on their part. There are those who do not, who must pay rent and work for wages. Those wages tend to the minimum level that people will accept. This may be set by minimum wage legislation or by benefit levels. In third world countries, the minimum wage is determined by the alternative marginal activity, such as scavenging on the local rubbish dump. And at the same time, rents for homes tend to the maximum that people are willing to pay, whilst leaving them with the minimum acceptable standard of living. A-C takes this situation as a starting point and does nothing about it. In other words, it enshrines privileges and is consequently highly attractive to those political parties whose aim is to defend the interests of the most privileged members of society. Thus we can expect ideas originating in the A-C school of thought to be applied by the recently-elected UK government.

In that situation, the eventual end result is a small class of landowners, to whom most of the wealth flows, with an impoverished majority living at a bare subsistence level. This is not theory, but experience over history and on a world-wide scale. Just as Marxist economies have invariably led to tyranny and poverty, so the kind of market economies proposed by A-C advocates have invariably led to divided societies, and often, to revolution and eventually, chaos or some form of socialism, which also solves nothing in the end.

All of this is not to say that the anarchist ideal is worthless. The problem with A-C is that it requires free land as it existed during the expansionist phase of the development of the USA. But land value taxation re-creates precisely the same situation of making land freely available at the margin. Fred Foldvary, who runs the website called in California, has been formulating an anarchist model which would avoid the pitfalls of A-C.

Read Fred Foldvary on this subject here.