Classical Liberalism versus Anarcho-capitalism by Jesús Huerta de Soto

In this first decade of the 21st century, liberal thought, in both its theoretical and political aspects, has reached a historic crossroads. Although the fall of the Berlin Wall and of real socialism beginning in 1989 appeared to herald "the end of history" (to use Francis Fukuyama's unfortunate and overblown phrase), today, and in many respects more than ever, statism prevails throughout the world, accompanied by the demoralization of freedom lovers.

Therefore, an "aggiornamento" of liberalism is imperative. It is time to thoroughly revise liberal doctrine and bring it up to date in light of the latest advances in economic science, and the experience the latest historical events have provided.

This revision must begin with an acknowledgement that classical liberals have failed in their attempt to limit the power of the state and that today economic science is in a position to explain why this failure was inevitable. The next step is to focus on the dynamic theory of the entrepreneurship-driven processes of social cooperation that give rise to the spontaneous order of the market. This theory can be expanded and transformed into a full-fledged analysis of the anarcho-capitalist system of social cooperation, which reveals itself as the only system that is truly viable and compatible with human nature.

In this article, we will analyze these issues in detail, along with a series of additional, practical considerations regarding scientific and political strategy. Moreover, we will make use of this analysis to correct certain common misunderstandings and errors of interpretation.

The Fatal Error of Classical Liberalism

The fatal error of classical liberals lies in their failure to realize that their ideal is theoretically impossible, as it contains the seed of its own destruction, precisely to the extent that it includes the necessary existence of a state (even a minimal one), understood as the sole agent of institutional coercion.

Therefore, classical liberals commit their great error in their approach: they view liberalism as a plan of political action and a set of economic principles, the goal of which is to limit the power of the state while accepting its existence and even deeming it necessary. However, today (in the first decade of the 21st century) economic science has already shown:

1. that the state is unnecessary;
2. that statism (even if minimal) is theoretically impossible; and
3. that, given human nature, once the state exists, it is impossible to limit its power.

We will comment on each of these matters separately.

The State as an Unnecessary Body

From a scientific perspective, only the mistaken paradigm of equilibrium could encourage belief in a category of "public goods" in which satisfaction of the criteria of joint supply and nonrivalry in consumption would justify, prima facie, the existence of a body with a monopoly on institutional coercion (the state) that would oblige everyone to finance those goods.

Nevertheless, the dynamic, Austrian conception of the spontaneous order that entrepreneurship drives has demolished this entire theory put forward to justify the state: the emergence of any case (real or apparent) of a "public good," i.e., joint supply and nonrivalry in consumption, is accompanied by the incentives necessary for the impetus of entrepreneurial creativity to find a better solution via technological and legal innovations and entrepreneurial discoveries which make it possible to overcome any problem that may arise (as long as the resource is not declared "public" and the free exercise of entrepreneurship is permitted, along with the accompanying private appropriation of the fruits of each creative, entrepreneurial act).

For instance, in the United Kingdom, the lighthouse system was for many years privately owned and financed, and private procedures (sailors' associations, port fees, spontaneous social monitoring, etc.) offered an effective solution to the "problem" of what "statist" economics textbooks depict as the most typical example of a "public good." Likewise, in the American Far West, the problem arose of defining and defending property rights concerning, for instance, head of cattle in vast expanses of land. Various entrepreneurial innovations which resolved the problems as they arose were gradually introduced (cattle branding, constant supervision by armed cowboys on horseback, and finally, the discovery and introduction of barbed wire, which, for the first time, permitted the effective separation of great stretches of land at a very affordable price).

This creative flow of entrepreneurial innovation would have been completely blocked if the resources had been declared "public," excluded from private ownership, and bureaucratically managed by a state agency. (Today, for instance, most streets and highways are closed to the adoption of innumerable entrepreneurial innovations — the collection of a toll per vehicle and hour, the private management of security and noise pollution, etc. — despite the fact that most such innovations no longer pose any technological problem. Nevertheless, the goods in question have been declared "public," which precludes their privatization and creative, entrepreneurial management.)

Furthermore, most people believe the state is necessary because they confuse its existence (unnecessary) with the essential nature of many of the services and resources it currently (and poorly) provides, and over the provision of which it exercises a monopoly (almost always under the pretext of their public nature). People observe that today highways, hospitals, schools, public order, etc. are largely supplied by the state, and since these are highly necessary, people conclude without further analysis that the state is as well.

They fail to realize that the above-mentioned resources can be produced to a much higher standard of quality as well as more efficiently, economically, and in tune with the varied and changing needs of each individual, through the spontaneous market order, entrepreneurial creativity, and private property. Moreover, people make the mistake of believing the state is also necessary to protect the defenseless, poor, and destitute ("small" stockholders, ordinary consumers, workers, etc.), yet people do not understand that supposedly protective measures have the systematic result, as economic theory demonstrates, of harming in each case precisely those they are claimed to protect, and thus one of the clumsiest and stalest justifications for the existence of the state disappears.

Rothbard maintained that the set of goods and services the state currently supplies can be divided into two subsets: those goods and services which should be eliminated, and those which should be privatized. Clearly, the goods mentioned in the above paragraph belong to the second group, and the disappearance of the state, far from meaning the disappearance of highways, hospitals, schools, public order, etc., would mean their provision in greater abundance, at higher standards, and at a more reasonable price (always with respect to the actual cost citizens currently pay via taxes).

In addition, we must point out that the historical episodes of institutional chaos and public disorder we could cite (for example, many instances during the years prior to and during the Spanish Civil War and Second Republic, or today in broad areas of Colombia or in Iraq) stem from a vacuum in the provision of these goods, a situation created by the states themselves, which neither do with a minimum of efficiency what in theory they should do, according to their own supporters, nor let the private, entrepreneurial sector do, since the state prefers disorder (which also appears to more strongly legitimize its coercive presence) to its dismantling and privatization at all levels.

It is particularly important to understand that the definition, acquisition, transmission, exchange, and defense of the property rights which coordinate and drive the social process do not require a body with a monopoly on violence (the state). On the contrary, the state invariably acts by trampling on numerous legitimate property titles, defending them very poorly, and corrupting the (moral and legal) behavior of individuals with respect to the private property rights of others.

The legal system is the evolutionary manifestation of the general legal principles (especially regarding ownership) compatible with human nature. Therefore, the state does not determine the law (democratically or otherwise). Instead, the law is contained in human nature, though it is discovered and consolidated in an evolutionary manner, in terms of precedent and, mainly, doctrine.

Law is evolutionary and rests on custom, and hence, it precedes and is independent of the state, and it does not require, for its definition and discovery, any agency with a monopoly on coercion.

Not only is the state unnecessary to define the law; it is also unnecessary to enforce and defend it. This should be especially obvious these days, when the use — even, paradoxically, by many government agencies — of private security companies has become quite common.

This is not the place to present a detailed account of how the private provision of what today are considered "public goods" would work (though the lack of a priori knowledge of how the market would solve countless specific problems is the naïve, facile objection of those who favor the current status quo under the pretext, "better the devil you know than the devil you don't"). In fact, we cannot know today what entrepreneurial solutions an army of enterprising individuals would find for particular problems — if they were allowed to do so. Nevertheless, even the most skeptical person must admit that "we now know" that the market, driven by creative entrepreneurship, works, and it works precisely to the extent that the state does not coercively intervene in this social process.

It is also essential to recognize that difficulties and conflicts invariably arise precisely in areas where the free, spontaneous order of the market is hindered. Thus, regardless of the efforts made from the time of Gustav de Molinari to the present to imagine how an anarcho-capitalist network of private security and defense agencies, each in support of more or less marginally alternative legal systems, would work, freedom theorists must never forget that what prevents us from knowing what a stateless future would be like — the creative nature of entrepreneurship — is precisely what offers us the peace of knowing that any problem will tend to be overcome, as the people involved will devote all of their effort and creativity to solving it. [1]

Economic science has taught us not only that the market works, but also that statism is theoretically impossible.

Why Statism Is Theoretically Impossible

The Austrian economic theory of the impossibility of socialism can be expanded[2] and transformed into a complete theory on the impossibility of statism, understood as the attempt to organize any sphere of life in society via coercive commands which involve intervention, regulation, and control and emanate from the body with a monopoly on institutional aggression (the state). The state cannot possibly achieve its coordination goals in any part of the social-cooperation process in which it attempts to intervene, especially the spheres of money and banking,[3] the discovery of law, the dispensing of justice, and public order (understood as the prevention, suppression, and punishment of criminal acts), for the following four reasons:

1. The state would need a huge volume of information, and this information is only found in a dispersed or diffuse form in the minds of the millions of people who participate each day in the social process.
2. The information the intervening body would need for its commands to exert a coordinating effect is predominantly tacit and inarticulable in nature, and thus it cannot be transmitted with absolute clarity.
3. The information society uses is not "given;" it changes constantly as a result of human creativity. Hence, there is obviously no possibility of transmitting today information which will only be created tomorrow and which is precisely the information the agent of state intervention needs to achieve its objectives tomorrow.
4. Finally and above all, to the extent state commands are obeyed and exert the desired effect on society, their coercive nature blocks the entrepreneurial creation of the very information the intervening state body most desperately needs to make its own commands coordinating (rather than maladjusting).

Not only is statism theoretically impossible, but it also produces a whole series of distorting and highly damaging peripheral effects: the encouragement of irresponsibility (as the authorities do not know the true cost of their intervention, they act irresponsibly); the destruction of the environment when it is declared a public good and its privatization is prevented; the corruption of the traditional concepts of law and justice, which are replaced by commands and "social" justice; [4]  and the imitative corruption of individuals' behavior, which becomes more and more aggressive and less and less respectful of morality and law.

The above analysis also permits us to conclude that if certain societies thrive nowadays, they do so not because of the state, but in spite of it . [5]  For many people are still accustomed to behavior patterns that are subject to substantive laws; areas of greater relative freedom remain; and the state tends to be very inefficient at imposing its invariably clumsy, blind commands. Furthermore, even the most marginal increases in freedom provide great boosts to prosperity, which illustrates how far civilization could advance without the hindrance of statism.

Finally, we have already commented on the false belief held by all those who identify the state with the provision of the ("public") goods it now provides (poorly and at great cost) and who wrongly conclude that the disappearance of the state would necessarily mean the disappearance of its valuable services. This conclusion is drawn in an environment of constant political indoctrination at all levels (especially in the educational system, which no state wishes to lose control of, for obvious reasons), an environment where standards of "political correctness" are dictatorially imposed, and the status quo is rationalized by a complacent majority, which refuses to see the obvious: that the state is nothing but an illusion created by a minority to live at others' expense, others who are first exploited, then corrupted, and then paid with outside resources (taxes) for all sorts of political "favors."

The Impossibility of Limiting the Power of the State: Its "Lethal" Character in Combination with Human Nature

Once the state exists, it is impossible to limit the expansion of its power. Granted, as Hoppe indicates, certain forms of government (like absolute monarchies, in which the king-owner will, ceteris paribus, be more careful in the long term to avoid "killing the goose that lays the golden eggs") will tend to expand their power and intervene somewhat less than others (like democracies, in which there are no real incentives to worry about what will happen after the next elections). It is also true that in certain historical circumstances, the interventionist tide has appeared to have been dammed to a certain extent.

Nevertheless, the historical analysis is irrefutable: the state has not ceased to grow.[6] And it has not ceased to grow because the mixture of human nature and the state, as an institution with a monopoly on violence, is "explosive." The state acts as an irresistibly powerful magnet which attracts and propels the basest passions, vices, and facets of human nature. People attempt to sidestep the state's commands yet take advantage of its monopolistic power as much as possible.

Moreover, in democratic contexts particularly, the combined effect of the action of privileged interest groups, the phenomena of government shortsightedness and vote buying, the megalomaniacal nature of politicians, and the irresponsibility and blindness of bureaucracies amounts to a dangerously unstable and explosive cocktail. This mixture is continually shaken by social, economic, and political crises which, paradoxically, politicians and social "leaders" never fail to use as justification for subsequent doses of intervention, and these merely create new problems while exacerbating existing ones even further.

The state has become the "idol" everyone turns to and worships. Statolatry is without a doubt the most serious and dangerous social disease of our time. We are taught to believe all problems can and should be detected in time and solved by the state. Our destiny lies in the hands of the state, and the politicians who govern it must guarantee us everything our well-being demands. Human beings remain immature and rebel against their own creative nature (an essential quality which makes their future inescapably uncertain).

They demand a crystal ball to ensure not only that they know what will happen in the future, but also that any problems which arise will be resolved. This "infantilization" of the masses is deliberately fostered by politicians and social leaders, since in this way they publicly justify their existence and guarantee their popularity, predominance, and governing capacity. Furthermore, a legion of intellectuals, professors, and social engineers join in this arrogant binge of power.

Not even the most respectable churches and religious denominations have reached an accurate diagnosis of the problem: that today statolatry poses the main threat to free, moral, and responsible human beings; that the state is an enormously powerful false idol which is worshipped by all and which will not countenance anyone's freeing himself from its control nor having moral or religious loyalties outside its own sphere of dominance.

In fact, the state has managed something which might appear impossible a priori : it has slyly and systematically distracted the citizenry from the fact that the true origin of social conflicts and evils lies with the government itself, by creating scapegoats everywhere ("capitalism," the desire for profit, private property). The state then places the blame for problems on these scapegoats and makes them the target of popular anger and of the severest and most emphatic condemnation from moral and religious leaders, almost none of whom has seen through the deception nor dared until now to denounce that in this century, statolatry represents the chief threat to religion, morality, and thus, human civilization. [7]

Just as the fall of the Berlin Wall in 1989 provided the best historical illustration of the theorem of the impossibility of socialism, the huge failure of classical-liberal theorists and politicians to limit the power of the state perfectly illustrates the theorem of the impossibility of statism, specifically the fact that the liberal state is self-contradictory (as it is coercive, even if "limited") and theoretically impossible (since once we accept the existence of the state, it is impossible to limit the expansion of its power). In short, the "law-based state" is an unattainable ideal and a contradiction in terms as flagrant as that of "hot snow, wanton virgin, fat skeleton, round square," [8]  or that evident in the ideas of "social engineers" and neoclassical economists when they refer to a "perfect market" or the so-called "perfect-competition model." [9]

Anarcho-capitalism as the Only Possible System of Social Cooperation Truly Compatible with Human Nature

Statism runs counter to human nature, since it consists of the systematic, monopolistic exercise of a coercion which, in all areas where it is felt (including those corresponding to the definition of law and the maintenance of public order), blocks the creativity and entrepreneurial coordination which are precisely the most typical and essential manifestations of human nature. Furthermore, as we have already seen, statism fosters and drives irresponsibility and moral corruption, as it diverts the focus of human behavior toward a privileged pulling on the reins of political power, within a context of ineradicable ignorance that makes it impossible to know the costs of each government action. The above effects of statism appear whenever a state exists, even if every attempt is made to limit its power, an unattainable goal which renders classical liberalism a scientifically unfeasible utopia.

It is absolutely necessary to overcome the "utopian liberalism" of our predecessors, the classical liberals, who were both naïve in thinking the state could be limited, and incoherent in failing to carry their ideas to their logical conclusion and accept the implications. Hence, today, with the 21st century well under way, our top priority should be to allow the (utopian and naïve) classical liberalism of the 19th century to be superseded by its new, truly scientific, and modern formulation, which we could call libertarian capitalism, private property anarchism, or simply, anarcho-capitalism. For it makes no sense for liberals to continue saying the same things they said one hundred fifty years ago when, well into the 21st century, and despite the fall of the Berlin Wall nearly twenty years ago, states have not ceased to grow and encroach upon people's individual freedoms in all areas.

Anarcho-capitalism (or "libertarianism") is the purest representation of the spontaneous market order in which all services, including those of defining law, justice, and public order, are provided through an exclusively voluntary process of social cooperation, which thus becomes the focal point of research in modern economic science. In this system, no area is closed to the drive of human creativity and entrepreneurial coordination, and hence efficiency and fairness increase in the solution of problems, and all of the conflicts, inefficiencies, and maladjustments which bodies with a monopoly on violence (states) invariably cause simply by virtue of existing, are eradicated.

Moreover, the proposed system eliminates the corrupting incentives created by the state, and in contrast fosters the most moral and responsible human behaviors, while preventing the emergence of any monopolistic body (state) which legitimizes the systematic use of violence and the exploitation of certain social groups (those which have no choice but to obey) by others (those which at any time have the tightest hold on the reins of state power).

Anarcho-capitalism is the only system which fully recognizes the free, creative nature of human beings and their perpetual capacity to internalize increasingly moral behavior patterns in an environment in which, by definition, no one can arrogate to himself the right to exercise monopolistic, systematic coercion. In short, in an anarcho-capitalist system, any entrepreneurial project can be tried if it attracts enough voluntary support, and therefore many possible creative solutions can be devised in a dynamic and constantly changing environment of voluntary cooperation.

The progressive replacement of states by a dynamic network of private agencies which back different legal systems and also provide all sorts of security, crime prevention, and defense services constitutes the most important item on the political and scientific agenda, as well as the most momentous social change to take place in the 21st century.

Conclusion: The Revolutionary Implications of the New Paradigm

The revolution spearheaded in the 18th and 19th centuries by the old classical liberals against the ancien régime finds its natural continuity today in the anarcho-capitalist revolution of the 21st century. Fortunately, we have discovered the reason behind the failure of utopian liberalism as well as the need to overcome it with scientific liberalism. Also, we know that the old revolutionaries were naïve and mistaken in pursuing an unattainable ideal which, throughout the twentieth century, opened the door to the worst statist tyrannies humanity has ever known.

The message of anarcho-capitalism is markedly revolutionary. It is revolutionary in its end: the dismantling of the state and its replacement by a competitive market process in which a network of private agencies, associations, and organizations take part. It is also revolutionary in its means, particularly in the scientific, economic-social, and political spheres.

1. Scientific Revolution. On the one hand, economic science becomes the general theory of the spontaneous market order extended to all social realms. On the other hand, it incorporates the analysis of the social discoordination statism produces in any area it influences (including law, justice, and public order). In addition, the different methods for dismantling the state, the transition processes involved, and the ways and effects of wholly privatizing all services now considered "public" comprise an essential field of research for our discipline.

2. Economic and Social Revolution. One cannot even imagine the spectacular human achievements, advances, and discoveries that will be possible in an entrepreneurial environment completely free from statism. Even today, despite continual government harassment, a hitherto unknown civilization has begun to develop in an increasingly globalized world. It is a civilization with a degree of complexity for which the power of statism is no match, and once it is totally rid of statism, it will expand without limit. For the force of creativity in human nature is such that it inevitably sprouts up through even the thinnest cracks in the government's armor. As soon as people gain a greater awareness of the fundamentally perverse nature of the state that restricts them, and once they perceive the tremendous opportunities removed daily from their reach when the state blocks the driving force of their entrepreneurial creativity, they will in large numbers join in the social clamor for reform, the dismantling of the state, and the advancement toward a future which remains entirely unknown to us but is bound to raise human civilization to heights unimaginable today.

3. Political Revolution. The daily political struggle becomes secondary to that described in a and b above. It is true that we must always support the least interventionist alternatives, in clear keeping with the efforts of classical liberals to democratically limit the state. However, the anarcho-capitalist does not stop at that; he knows, and must also do, much more. He knows that the ultimate goal is the total dismantling of the state, and this fires his entire imagination and fuels all of his political action on a daily basis. Small advances in the right direction are certainly welcome, but we must never slip into a pragmatism that forsakes the ultimate goal of putting an end to the state. For purposes of teaching and influencing the general public, we must always pursue this objective in a systematic, transparent manner.[10]

For instance, the anarcho-capitalist political agenda will include ever reducing the size and power of states. Through regional and local decentralization in all areas, libertarian nationalism, the reintroduction of city-states, and secession, [11]  the aim will be to block the dictatorship of the majority over the minority and to permit people to increasingly "vote with their feet" rather than with ballots. In short, the goal is for people to be able to collaborate with each other on a worldwide scale and across borders, to achieve the most varied ends without regard to states (religious organizations, private clubs, Internet networks, etc.). [12]

Moreover, let us remember that political revolutions need not be bloody. This is especially true when they result from the necessary process of social education and development, as well as from popular clamor and the widespread desire to stop the deception, lies, and coercion that prevent people from fulfilling their aims. For example, the fall of the Berlin Wall and the Velvet Revolution, which brought an end to socialism in Eastern Europe, were both basically bloodless. Along the path to this important final result, we must use all of the peaceful[13] and legal[14] means that current political systems permit.

These are wise principles, to which I would add that participation and financing must be entirely voluntary. Any act of violence which goes against one of these principles is automatically delegitimized and becomes the worst enemy of the professed objective. Finally, Father Juan de Mariana's whole theory of tyrannicide is also relevant here. Juan de Mariana,  De Rege et Regis Institutione  (Toledo: Pedro Rodríguez, 1599) 

An exciting future is opening up, in which we will continually discover new roads that will lead us, in keeping with fundamental principles, toward the anarcho-capitalist ideal. Though this future may seem distant today, at any moment we may witness giant steps forward which will surprise even the most optimistic. Who was able to predict five years in advance that in 1989 the Berlin Wall would collapse, and with it communism itself in Eastern Europe? History has entered into an accelerated process of change, and although it will never come to a halt, it will begin an entirely new chapter when humanity, for the first time in modern history, manages to rid itself of the state once and for all and reduce it to nothing more than a dark and tragic historical relic.

Comments on the Spanish Anarchist Tradition

The chart shows the different political systems and how they evolve naturally into each other. They are grouped according to the degree to which they favor statism or antistatism, and support or oppose private property.

We see how the initial (mistaken and utopian) revolutionary movement of the classical liberals against the old regime slips into the pragmatism of accepting the state and opens the door to forms of socialist totalitarianism (communism and fascism/Nazism). The fall of real socialism ushers in social democracy, which today prevails far and wide (groupthink).

The liberal revolution, which owes its failure to error and naïveté on the part of classical liberals, has a still-pending stage, which will consist precisely of the evolution toward anarcho-capitalism.

One consequence that followed the failure of the liberal revolution was the appearance of libertarian communism, which was unanimously reviled and combated by supporters of the other political systems (particularly the most left-leaning ones), precisely due to its antistatist nature. Libertarian communism is also utopian, because its rejection of private property compels the use of systematic (i.e., "state") violence against it, thus revealing an insuperable logical contradiction and blocking the entrepreneurial social process which drives the only anarchist order scientifically conceivable: that of the capitalist libertarian market.

Spain has a long-established anarchist tradition. While we must not forget the great crimes committed by its supporters (in any case qualitatively and quantitatively less serious than those of communists and socialists), nor the contradictions in their thinking, it is true that, especially during the Spanish Civil War, anarchism was an experiment which enjoyed great popular support, though it was destined to fail. Just as with the old liberal revolution, today anarchists have before them their second great opportunity, which lies in overcoming their errors (the utopian quality of an anarchism which rejects private property) and accepting the market order as the sole, definitive path toward abolishing the state. If the Spanish anarchists of the 21st century can internalize these teachings from theory and history, Spain will very likely surprise the world again (this time for good, and on a large scale) by leading the theoretical and practical vanguard of the new anarcho-capitalist revolution.

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