“We shall need a new manner of thinking if mankind is to survive.” —Albert Einstein
“Only art and science give us a hope for a higher life.” —Ludwig van Beethoven
NOTE: This chapter was published in 2011. Some of the factual data may have changed, but the essential message remains unchanged.
For new visitors to this book and website it is suggested that it may be best to start with this Chapter 1, entitled Free Enterprise Government, then read the Frequently Asked Questions that follow chapter 1, and next read Chapter 2, Civilization in Crisis. These give an overview of the entire subject of the book and website.
Chapters 3 and 4 are the basis for everything that follows. Chapter 3 is Andrew Galambos’ explanation of the Scientific Method and its use in the social domain.
Chapter 4 sets forth Galambos’ postulates of what he calls the science of volition, meaning the explanation of human choice as the fundamental way people operate in what is also called economic life. Galambos’ approach is more comprehensive and all-inclusive than the term “economics” implies. People make choices that express their preferences in every aspect of human action, not just choices in buying and selling, what kind of work to do for a living, but also in every conscious and unconscious act. People are always making choices.
Galambos’ view is that everybody should be free to choose to do anything they wish to do as long as they do not interfere with the freedom of others.
That has important implications for politics because politics is all about forcing people to do things they would rather not do. Every political law tells people either you must do something or you are forbidden to do something.
Carl von Clausewitz, a famous German military strategist, said that “War is politics carried on by other means, to compel our adversaries to submit to our will.” That is true.
The converse is also true. Politics is war carried by other means, to compel our adversaries to submit to our will.
Capitalism: The Liberal Revolution (CTLR) is an investigation of ways for people to live together without anyone forcing anyone else to do anything and without stopping anyone else from doing what they want to do, as long as they do not interfere with the freedom of others.
We are now approaching the time for true self-government—by consent of the governed rather than by imposition of authority from above. Humanity is already in process of an evolutionary development leading to a social structure where government is a service provided by free enterprise service organizations that can be replaced without violence or struggle, just as one would choose freely to patronize or to cease patronizing any other form of service.
The work of Andrew J. Galambos, which inspires this essay, points the way to using the intellectual model and principles of science to create a new science which can enable human society to abandon coercion as the model for human interaction, and to embrace a model of cooperation and voluntary self government. Two of Galambos’ central theses were that the cause of war is the state; and that there are no positive services provided by the state that cannot better be provided by private and free enterprise.
Secular states have initiated many wars, but so have organized religions. The state is involved in religious wars because organized religion often is an arm of the state, and sometimes the state and organized religion are one and the same.
Although war has been the bane of human existence we turn first to replacements for the political state. Let’s imagine that the state has gone out of business. That proposition may have seemed far fetched at one time, but by now it appears self-evident that the modern social welfare state is failing and going bankrupt everywhere that it exists.
Without the state one might ask how could there be fire protection, police protection, national defense, health care for all, mail service, streets, roads and highways, mass urban transit, schools and education, money, courts to resolve private disputes, etc. All of those services and functions are either being provided already by free, private enterprise, or could be provided by means of social arrangements already in existence.
The reader will be interested in practical solutions, for example to the issue of deterrence of criminal acts against individuals. In a very small town, scoundrels, crooks and cheats are known to everyone. Beyond calling the sheriff, there is the pressure of social disapproval and boycott. Today, for purpose of communicating we have a virtual global village, where misconduct can be advertised far and wide. Imagine a large scale and growing usage of the remedy for contract violation used by a credit card issuer. The delinquent card holder is cut off from credit, not only with the one issuer, but perhaps with others.
In addition, the insurance mechanism can reimburse crime victims for loss, and then with all the resources of the vast insurance industry, the insurance company could pursue restitution from the offender. With both insurance and credit elevated to a form of justice, there may well come a time when it becomes true that crime does not pay.
Credit and insurance, fully developed as part of a system of justice, do not assure absolute elimination of criminal behavior. However, they will afford restitution and make it expensive and counter-productive to engage in criminal activity.
A more complete exposition of an ideal justice mechanism was set forth in lecture number 12 of Course V-50, which will be examined and expanded in a chapter herein on Justice. The Course V-201 portion of this treatise will go deeper into the attainment of justice. It is more than likely that society will achieve enormous savings by using credit and insurance mechanisms to deter crime and achieve restitution when crime occurs, namely savings in losses through reduction in successful attacks on persons and property as well as the increase in peace of mind that comes from the security of living in a society with minimal criminal activity.
Benjamin Franklin (1706-1790) organized the first American fire department in Philadelphia in 1736 and, to pay for the Philadelphia fire protection, organized the first fire insurance company in 1751. Franklin also advised ways to minimize the chance of fire, referring to his maxim “an ounce of prevention is worth a pound of cure.”
Since 1948 Rural/Metro Corporation of Scottsdale, Arizona has been providing fire protection services. In 1948 Rural/Metro’s founder, Lou Witzeman became concerned that his community (in Scottsdale) lacked fire protection. He pulled together some money, bought a fire truck, and asked his neighbors to support this fledgling company.
As a private sector company that partners with communities, Rural/Metro is dedicated to finding the most cost-effective ways to deliver the highest quality fire protection and ambulance services. 1 The company is the largest provider of privatized fire protection in the U.S. providing fire protection or ambulance service, or both in nineteen states. 2
In Scottsdale, Arizona Rural/Metro provided fire protection service at a small fraction of the national average cost for cities of 50,000-100,000 population while the per capita fire loss in Rural/Metro’s Scottsdale service area was far less than the national per capita fire loss; in consequence fire insurance rates for Rural/Metro’s Scottsdale customers were one-fourth the national average for cities of similar size. 3
Municipal bureaucracies and unions have been an obstacle to wider utilization of competitive private fire protection. 4 For example, in 2005 Rural/Metro decided to terminate its contract with the city of Scottsdale after 52 years following the political pressure generated by an unsuccessful ballot initiative pushed by unions to end that contract and create a municipal Scottsdale fire department. 5
The Walt Disney Company provides its own fire protection services at the Disney Studios in Burbank, California, and at Disney World near Orlando, Florida.
Conventional city fire fighters put out fire and damage buildings in the process
Private fire protection seeks to prevent fire damage. For example, in the 2008 Santa Barbara, California wild fire, private fire protection saved homes by coating surrounding vegetation with fire retardant and moving flammable items away from the structure. 6
Lack of proprietary interest in preventing fires is the reason municipal fire departments and fire fighters do not try much, if at all, to prevent fires. However, for a private fire insurance company and its fire prevention department or affiliates it is profitable to prevent fires. Fires are a loss not only to the individuals whose structures burn, but also to the insurer and the fire protection services that it utilizes. We will explore this subject in greater detail below.
State and local police do not try to prevent crime from occurring. Usually the police come to the scene of a crime in response to a report from private citizens. The only element of crime prevention afforded by the state is the deterrence of crime by the possibility of a criminal being apprehended, prosecuted successfully and then incarcerated. That this is inadequate to prevent widespread crime is evident from the prevalence of violent crimes (physical assaults, homicides, rapes, etc.) and thefts (robbery, burglary, larceny, etc.) where the perpetrator is never identified, much less apprehended and prosecuted to conviction and incarceration.
Over half of violent crimes and over 80% of property crimes are not solved by the police. See “What is the percentage of solved crimes and unsolved?” http://answers.yahoo.com/question/index?qid=20080122132958AA3ug19
The justification for local police is to protect citizens from crime. However, nowhere in America is there any assurance that the police can apprehend and convict criminals, much less prevent crime. In the most dangerous areas of American cities, the police are virtually of no use at all to protect citizens. In South Central Los Angeles extraordinary numbers of people are murdered, and the killers are never caught. The dangerous and precarious nature of life for residents of South Central Los Angeles was portrayed in the 1991 motion picture Boyz n the hood. In 2002, the United States Library of Congress deemed the film “culturally significant” and selected it for preservation in the National Film Registry.
According to an article in The Los Angeles Times in 2004, “the Los Angeles Police Department’s South Bureau, which patrols most of this part of the city [south and central Los Angeles], has accumulated a backlog of more than 2,400 unsolved homicides over the last 15 years . . . in the hardest-hit neighborhoods, people describe how fear, and the conviction that serious crimes are not solved, makes them reluctant to confront homicide, unwilling to cooperate with authorities or act as witnesses, and disinclined to place their faith in the police.” Quoted from “Getting Away With Murder in South L.A.’s Killing Zone,” by J. Leovy and D. Smith, Los Angeles Times, January 1, 2004. http://articles.latimes.com/2004/jan/01/local/me-unsolved1
Los Angeles is not unique in this regard. The foregoing statement would be as true of crime-ridden inner cities throughout the U.S.
The political state is a root cause of the anti-social, criminal behavior that is endemic in the inner cities of America. There is in those inner cities a permanent underclass populated by unmarried women bringing forth babies who will be raised without fathers. Due to the welfare systems of America, a pregnant, low-income, single woman is economically better off staying single and going on welfare than marrying a man with a typical low-income job.
As demonstrated in the movie Traffic (2000) the “war on drugs” has created a profitable and lucrative activity for drug gangs in America, just as prohibition of alcoholic beverages created a profitable business for organized crime in America in the 1920s and early 1930s.
Politics has made organized crime profitable, e.g., by prohibition of sale of intoxicating liquor from 1919-33 and by the “war on drugs” in more recent years. The following is from Wikipedia about prohibition of intoxicating liquors and is just as true of the war on drugs. “The effects of Prohibition were largely unanticipated. Production, importation, and distribution of alcoholic beverages — once the province of legitimate business — were taken over by criminal gangs, which fought each other for market control in violent confrontations, including mass murder.” http://en.wikipedia.org/wiki/Volstead_Act
Organized crime in Mexico thrives on the profits of transport to and sale of illegal drugs in the U.S. There is now warfare between large-scale Mexican drug gang organizations fighting each other for market control in violent confrontations. Over 18,000 people died violently in the drug wars of Mexico in 2009 and 2010. “How Mexico’s drug war affects tourism,” by C. Reynolds, Los Angeles Times, December 26, 2010, http://articles.latimes.com/2010/dec/26/travel/la-tr-mexico-20101226
Private security has become a large industry in the U.S., employing about between 50% and 75% of the people working as security officers according to various reports. Private security guards and patrolmen and voluntary watch and patrol organizations do what public police have not generally done, namely making routine checks on buildings for residents or businesses, and watching to prevent crime.
Any privately owned office building or commercial property of any size employs private security to watch for and prevent crime. This is because property owners cannot depend on the police to prevent crime, and property owners seek to prevent crime to protect the users of their property.
According to a report in the San Francisco Chronicle of August 8, 2010, three out of four people working to protect persons and property in the U.S. are in private employment, including over 2 million security officers and security guards compared to the nearly 700,000 sworn law enforcement officers in the U.S. Reporter Amy Goldstein states: “the enormous Wackenhut Corp. guards the Liberty Bell in Philadelphia and screens visitors to the Statue of Liberty.” 7
A study financed by an agency of the United States found that as of 2008 a little more than half of America’s security personnel worked in the private sector, with a little less than half working for various levels of government, from the United States down to local police and sheriffs. 8
“The global security services market employs several million people and has annual sales of approximately US $90 billion. In the long term, the industry is expected to grow about seven percent annually.” 9The private global security business came into existence and has grown rapidly precisely because private security seeks to prevent crime while state police do not.
Federal, state and local governments employ private security to protect government personnel and property. For example, “. . . nearly 40 private security firms with about 26,000 employees are employed in Afghanistan by the U.S. government alone, including those working for the military and the State Department.” Quoted from “Karzai disbanding security firms,” by L. King, Los Angeles Times, Oct. 4, 2010 (Afghan President orders several private security firms to cease operating in the country, leaving most of the private security companies still operating).
State and local police have no proprietary interest in preventing crime. Crime prevention is not their job. Even the business of patrolling the streets and issuing citations for violation of vehicle operation laws is not about prevention. The supposed justification for traffic citations is to deter unsafe driving. But neither the traffic cop nor his municipal employer has any proprietary interest in preventing auto accidents.
Were streets and highways operated on a proprietary basis, the operators would have a profit motive in accident prevention. They could minimize or even eliminate traffic accidents by a variety of means explored in later chapters, including but not limited to better design of streets to facilitate safe traffic conditions, barring from the streets drivers with proven records of dangerous driving and those whose vehicles were unsafe to operate, barring vehicles not equipped with devices to prevent starting the engine in the presence of the odor of alcohol within the vehicle, 10 charging for the use of streets and highways, with higher rates during rush hours to reduce traffic at such times, just as airlines charge more for flying during the busiest travel seasons.
While these suggestions may seem controversial when first encountered, with greater familiarity with the concepts the reader may begin to see their merit.
In a chapter on “Justice” CTLR will suggest some ways of deterring and even preventing crime from occurring before it becomes necessary to call upon private security. To be specific, credit could be a powerful means to deter criminal acts, that is credit in the sense of personal reputation. For example, one hears occasionally that in small town America many people don’t bother to lock the doors to their homes and to their cars. Why not? Because in a small town everyone knows who are the scoundrels, cheats and crooks. They are, in effect, boycotted by the rest of the residents. Such a voluntary boycott makes it difficult for dishonest people to live in a small community, so often they leave.
Imagine the world of the future, even the immediate future, as a kind of global village linked by near instantaneous electronic communication. A person’s misdeeds could and likely would be published to the world via personal credit rating services. A very brief internet search of the words “credit profile report” yielded reference to existing credit reporting companies’ services that amount to a creation of a virtual global village of reputation information. For example, the following statement was found on the website of a leading credit reporting company:
“Factual credit information also offers insight into how a prospective employee handles his or her financial obligations, which helps you make informed hiring decisions quickly and cost-effectively.” 11
Some people may object that such credit reporting is an invasion of personal privacy. Surely, it does reduce the privacy of people’s lives. However, society seems already to have made a judgment that the desirability of protecting personal privacy should not become a shield for anti-social behavior. And, the benefits of freedom of expression and freedom of communication may well, even for the most punctilious protectors of personal rights, outweigh concerns about privacy.
However, the lack of privacy in global village communications will be a concern during the transition from rule by the state to a stateless society. In June 2013 it was revealed that the U.S. National Security Agency collects billions of telephone and Internet records of Americans. 12
A state’s power to examine all private communications would enable a search for some violation of law by anyone regarded as politically undesirable. In the past, the U.S. has used its powers to harass people, for example Federal Bureau of Investigation spying on civil rights leader Martin Luther King during the 1960s and political espionage and illegal surveillance during the administration of President Richard Nixon. Laws of the state dealing with almost any conceivable human activity have become so voluminous that a prominent American civil liberties lawyer has written a book claiming that a typical American may be committing up to three felonies per day, unwittingly and with no intent to do harm to anyone. 13 In a stateless society, one established on the principle of non-coercion and private, competitive, proprietary government services, there would be no state with the power to accuse, prosecute and imprison people.
OCEAN-GOING PRIVATE SECURITY
Private security is at work protecting ocean-going travel from piracy in the Indian Ocean, off the northeast coast of Africa, near Somalia. The information below appeared in “Suspected pirates face unprecedented trial in U.S. court,” by Shashank Bengali, Los Angeles Times, June 1, 2013. 14 Bold face indicates emphasis added to quoted text.
During the six years 2005-2011 heavily armed Somali pirates “. . . in jury-rigged speedboats hijacked oil tankers, cargo ships and private yachts. The pirates held hundreds of crew members hostage for lucrative ransoms. In February 2011 pirates killed four Americans they had been holding hostage.
“Somali piracy had crippled shipping in some of the world’s busiest sea lanes, costing companies an estimated $5 billion a year.
“An international naval operation, combined with aggressive prosecutions and shipboard security measures, have nearly halted the Indian Ocean crime wave in the last two years. Dozens of nations have deployed warships, U.S. Navy drones have provided aerial surveillance, European jets have struck pirate lairs, and 21 countries have jailed more than 1,100 suspected pirates.
“Some governments, including Iran, China and India, also have taken unilateral action, sending warships to escort convoys of tankers and commercial ships through waters once infested with pirates.
“‘It’s really remarkable. I hope some historian is watching this’ said Donna Hopkins, a U.S. diplomat who chairs the Contact Group on Piracy off the Coast of Somalia, an umbrella group of more than 60 countries and international organizations.
“‘It’s totally voluntary; it’s not coercive; no one is in charge,’ Hopkins said. . . Somali pirates, many armed with assault rifles and rocket-propelled grenades, staged 176 attacks in 2011, the year the four Americans were killed. The pirates captured 25 ships and netted an estimated $160 million in ransom for the ships and crews that year, according to Oceans Beyond Piracy, an advocacy group based in Colorado.
“In contrast, the pirates have launched [only] three attacks so far this year. The last successful hijacking was more than a year ago.
“The international naval response costs more than $1 billion a year, but U.S. officials and shipping industry leaders consider that money well spent. Nearly 75% of the world’s traded oil and half the container traffic passes through the Indian Ocean. . .
“New security measures aboard merchant ships also have helped. Some crews now unroll razor wire over the sides to prevent pirates from clambering aboard, fire high-powered water cannons or ear-piercing sirens to keep small boats at bay, or take refuge in fortified rooms.
“New industry guidelines instruct ships to travel in packs, and at greater speed, when transiting high-risk areas. Experts say half the ships in the region now carry teams of armed guards, many hired from private American security companies, to ride shotgun against pirate attacks.
“U.S. officials say Somali pirates have never hijacked a ship that had armed guards. ‘This has been a real game-changer in the effort to combat piracy,’ Andrew Shapiro, an assistant secretary of State, told Congress in April.
“Kevin Doherty, president of Nexus Consulting Group, based in Arlington, Va., said his company had put armed guards on about 450 ships in the Indian Ocean since 2009. None have engaged in a gunfight, but they have fired warning shots three times, he said. . . Last year, a video surfaced of guards employed by Trident Group, based in Virginia Beach, Va., firing dozens of rounds as two skiffs approached a freighter in March 2011.
“Trident officials said the guards had spotted rocket-propelled grenades aboard the skiffs and had fired warning shots before opening fire. It’s unknown whether the skiffs carried pirates, or whether anyone was killed or wounded.”
Comment: The bold-face portions of the foregoing illustrate how private security already protects ocean-going commerce. The maritime insurance industry has the resources and the financial incentive to provide ocean-going security and could and no doubt would do so as the state gradually goes out of existence.
In their discussion of national defense against external aggression, Andrew Galambos and Jay Snelson posited that high technology and high production, not the state, are the keys to effective defense. During WW II the U.S. went to war, but it was American industry that produced victory. America out-produced the combined war production of Nazi Germany and Imperial Japan. That proposition has been corroborated in Freedom’s Forge: How American Business Produced Victory in World War II (2012) by Arthur Herman.
The Somali pirates were no match for private security on board ships. As indicated in the news article above, private security, much of it provided by American security companies, thwarted all high-jacking attempts that had not been headed off by the various national military forces sent out against the pirates. As shown in the report above “U.S. officials say Somali pirates have never hijacked a ship that had armed guards.” Since private security was adequate to the protection of ships, state action was unnecessary and appears to have been less effective than private security.
American health care is too expensive; and private insurance is unaffordable or even unavailable for those who lose employment-based health insurance coverage when seriously ill. In our view these problems are due almost entirely to state and federal laws controlling the way health care is provided and paid for. These laws distort the normal operation of the economic law of supply and demand by increasing demand for health care services beyond society’s capacity or willingness to increase the supply of such services. Consequently health care prices have escalated much more rapidly than other prices and much more rapidly than incomes.
A century ago annual health care spending in America was about 1% of Gross Domestic Product (GDP). In the second decade of the 21st century, health care spending in America was consuming 17% of GDP. Some of the increase in costs is due undoubtedly to advances in medical technology, for example diagnostic procedures such as magnetic resonance imaging (MRI), minimally invasive surgical procedures, coronary artery bypass surgery, etc. However, much of the growth in spending is due to the increased availability of insurance after the early 1940s, when a change in the federal income tax laws made employer-paid health insurance extremely attractive in comparison to the tax treatment for individuals buying their own insurance. An entitlement mentality developed in which people who are insured give little or no thought to the medical costs they are incurring because they don’t pay much of the cost out of their own funds.
The advent of Medicare in 1965 reinforced the entitlement mentality. Medicare is extremely low cost for senior citizens. That is why Medicare expenses in 1970 were twice what Congress estimated they would be just three years earlier, and why 1990 Medicare expenses were nine times higher than a 1970 estimate of Congress for anticipated 1990 costs. Medicaid, a joint federal and state program for low-income people, costs patients virtually nothing in most states, and is putting severe strain on state budgets.
Health insurance has been regulated by the fifty states. Fifty years ago states did not require (mandate) specific coverage of health insurance, which was a subject left to competition among insurers and the demand of consumers. Now, however, the fifty states in aggregate mandate over 2,000 specific coverages, with the number ranging from below 20 in some states to over 60 in others. In aggregate these state mandated coverages add 20% to 50% to the cost of insurance. Many consumers don’t need the specific coverages, e.g., maternity and mammograms insurance is not needed by single males, while prostate cancer insurance is not needed by single females. Insurance costs could be reduced significantly by eliminating all state-mandated coverage and leaving the insurance offered to competition among insurance companies and the preferences of consumers, as is the case with almost all other forms of insurance, from auto to homeowners.
Health care is provided by hospitals and by individual physicians and other specialized health care professionals and technicians engaged in services ranging from nursing to every other form of therapeutic and palliative treatment available for injury and illness. Neither the federal and local states nor insurance companies actually provide health care; but they are involved deeply in payment for health care and controlling how health care services are provided.
Six federal health insurance programs together cover almost half the U.S. population. Health care insurance through employment or individual insurance covers about 40% of the U.S. population and about 15% have no health insurance.
The federal Government Accountability Office says that Medicare, the federal health care payment program for those 65 years of age and older, is “high-risk” and needs reform because of its long-term financial problems and its vulnerability to fraud. Medicaid, the joint federal and state health care program for the poor, also has huge financial problems.
Medicare has no assets other than future obligations of taxpayers. Medicare is running a current deficit. Medicare’s trustees report that the program has $38 trillion in unfunded future liabilities ($330,000 per U.S. household).
Medicare and other federal health benefits programs provide open ended, unfunded promises to pay future benefits. In contrast, insurance companies employ actuaries and underwriters to estimate future expenses and price insurance to ensure that money is available to provide the benefits promised.
Medicare’s dire financial condition is due to its design and operation. Medicare and Medicaid patients, and most persons covered by employer-sponsored health insurance as well, pay relatively little for hospital, physician and other health services. Consequently, in accordance with the economic law of supply and demand, the demand has far outstripped the supply, causing health care costs to rise much faster than the overall cost of living, or of incomes.
Medicare payroll taxes are far too low to fund the benefits promised. Fraudulent claims account for 20% to 30% of Medicare expenditures. Medicare’s payment methods allow abuse by repeated charges for unnecessary procedures and supplies. Private insurance companies experience much lower losses from fraud and abuse because they spend the money necessary to minimize it.
Cutting payments to hospitals and physicians is no solution to the financial woes of Medicare and Medicaid. These programs already pay less than the costs of hospitals and many physicians, who then try to shift these unreimbursed costs to privately insured patients. That is one of the major causes for the alarming escalation in the cost of private insurance, which has been rising 12% annually in recent years. Many physicians decline Medicare and Medicaid patients already due to inadequate and slow payment and some even decline private insurance for similar reasons. Cutting payments to physicians will only further limit access to physician services.
Medicare specifies 467 medical conditions for which it will pay. Medicare does not allow much payment for a primary care physician spending quality time with a patient to evaluate his condition, decide on treatment or make appropriate referrals to specialists. Private insurance companies and Medicaid follow Medicare’s lead. Consequently, primary care physicians earn about half the average for other physicians, and they work about 80 hours a week. No wonder that the number of primary care physicians is shrinking as they leave that field to be re-trained in another specialty, or retire early.
The foregoing brief summary indicates that the cost of American health care is suffering from a pathological affliction in the form of political state action that has had the unintended consequence of making health care more more rather than less expensive.
Private enterprise could solve the foregoing problems through the price mechanism and competition, if only the federal and local states would get out of the health care financing business.
Health care, notwithstanding its literally vital nature, is a service like any other described in this essay, such as security for persons and property; fire protection; streets, roads and highways; education; etc. Absent state intervention in health care finance, individuals could insure themselves for the risk of health care costs just as they insure themselves for the risk of operating an automobile. Individuals would choose how much to insure and how much to self-insure via deductible and co-payment.
The risk of becoming uninsurable could be solved readily by the free market.
Already one large insurance company UnitedHealth Group offers private health care insurance that is non-cancellable and guaranteed renewable regardless of change in health status. As we will describe in some detail below in this book, it could be profitable for insurance companies to offer such guaranteed issue health insurance even to expectant parents who could purchase it for as yet unborn children.
The free market approach to health care insurance outlined above would likely reduce greatly the current and future costs of health care.
Since the demand for health care is potentially without limit, the demand will have to be limited. The political state solution is rationing of health care as is seen in Medicare, Medicaid, various forms of private health insurance and in the single payer “socialized” medicine systems of Canada and European countries.
The free market solution is voluntary self-rationing and limitation of demand for health care through individual choice, individually designed insurance, and insurance discounts for favorable life-style choices (non-smoking, non-alcohol consumption, non-substance abuse, non-obesity, non-participation in risky activities such as riding motorcycles, etc.), which in aggregate could eliminate the need for as much as 75% of the current expenditures for health care.
Furthermore, hospital-borne disease is a significant cause of complications and death incident to hospitalization. Insurance companies could offer still further discounts for using hospitals that have been successful in minimizing the incidence of hospital borne disease. 15
For some time to come it will remain necessary politically to look to the taxing power of the political state to pay for lower cost health insurance for some relatively small portion of society. This issue is addressed below under the heading “Caring for the Needy and Helpless in the Transition to a Totally Stateless Society.”
While it is generally accepted that law and order are essential functions of the state, there is also widespread dissatisfaction with the state civil and criminal justice systems. The inherent flaw in state criminal justice is the definition of crime as any violation of a law of the state. The federal and local states promulgate so many laws that one can easily commit a “crime” without knowing it and without doing anything that is a violation of that fundamental law of morality—the Golden Rule—that is the essence of many major religious belief systems.
Every first-year law student learns that with few exceptions “intent” to violate a law is an essential element of conduct made criminal by the state. However, the sheer number of laws makes a travesty of the legal maxim that “ignorance of the law is no excuse.” In the Los Angeles County law library there are more than one million volumes of books on the law. If one does not know what the law is, how can one intend to violate it?
The federal tax code of the U.S. contains nine million words; there are around 20 million more words of tax law regulations issued by the U.S. Treasury Department to explain and buttress the tax code. These laws and regulations are further interpreted by many thousands of law books containing administrative rulings and federal court decisions in tax cases. Federal and state tax laws have spawned a huge and expensive tax compliance industry, devoted in part to helping people minimize their tax legally. Nevertheless, failure to pay “enough” in tax can constitute the crime of tax evasion, if the tax collectors choose to make an example of someone.
Galambos used to say that everyone is ignorant of the law, pointing out the rarity of unanimous decisions by the nine members of the U.S. Supreme Court, where the most important cases are often decided by a five to four vote. Galambos observed correctly that all courts of appeal have an uneven number of judges to avoid deadlock by tie vote. If appellate judges cannot agree on the rules of law, it is no wonder that individuals cannot help but be ignorant of the law.
If the only criminal offenses were violations of the Golden Rule, most of the state criminal laws would be inapplicable. There are a host of victimless crimes, where conduct is made criminal even though there is no victim. A prime example occurred from 1918 to 1933 when the laws of the U.S. prohibited sale and consumption of alcoholic beverages, a totally lawful activity before and after the period of prohibition.
If a state-defined crime is one where there is a real victim, such as attacks on person and property, the state justice system is not designed to provide restitution to the victim for the damage done. Rather, the criminal justice system is designed to identify, apprehend, prosecute, convict and punish the offender, none of which causes restitution to the victim. Furthermore, the criminal justice system does a poor job of identifying criminal offenders, witness the large number of unsolved crimes.
For many prisoners, their families, and the citizens whose taxes pay for prisons, imprisonment is an injustice in and of itself, for example in the case of victimless crimes or non-violent offenses. For such people time in prison is a time of enforced non-productivity. Prisoners are offered neither the opportunity to do productive work nor to pursue quality, formal education or training leading to a college degree or certification of attainment of skill in a trade. They may be serving long sentences during which only highly motivated prisoners who have supportive families can at least have access to books and recordings which might provide the means for self-education.
Where productive work in prison is available it is at extremely low pay, due to laws enacted at the instance of labor unions trying to protect their members from competition by prisoners working for pay. For prisoners who should be making financial restitution for a property offense, the inability to earn significant amount of money postpones the time when they will be able to start making financial restitution.
The per-prisoner cost of imprisonment is high, averaging nearly $50,000 a year in California. Prisoners typically serve long sentences due to laws whose purpose is punishment, not rehabilitation. America has a prison population nearly 5x as high in relation to population as the global average, due to the plethora of convictions with long sentences for victimless crimes or non-violent offenses. The U.S., with 5% of global population has 23% of the world’s prisoners. 16
For private disputes, state laws provide a system of courts for dispute resolution. However, the civil justice system is expensive, time-consuming and produces injustice as well as justice in all too many cases. Its very costliness is an injustice. The general American rule about attorneys’ fees is that the loser in litigation does not have to pay the winner’s attorneys’ fees. That rule promotes injustice by encouraging lawsuits that are frivolous and lacking in merit.
The failings of the state system of justice are causing people in ever increasing numbers to choose privately operated crime detection and prevention services and dispute resolution through arbitration and mediation. These services are growth industries precisely because they provide far better property protection and dispute resolution service than the state justice system.
The topics of justice, the injustice of the American criminal justice system, and better ways of achieving true justice were covered in lecture number 12 of Course V-50, and will be examined in some detail in chapters near the end of the V-50 portion of this website. Some good thinking in this field is already available, for example two books by Professor Bruce L. Benson on free enterprise systems of what are now called civil and criminal justice. 17
POSTAL SERVICE (MAIL)
The U.S. Postal Service (USPS) is one of the best government postal services in the world, but it is in process of becoming an anachronism due to advancing technology.
Under the provisions of the U.S. Constitution authorizing Congress to “establish post offices and post roads,” Congress enacted a law, the Private Express Statute, which gives the U.S. post office a monopoly on the delivery of letters. In the 1840s, Lysander Spooner established a private, profit-seeking company, The American Letter Mail Company, to deliver mail. His rates were lower and his delivery service better than the post office.
The USPS got Congress to pass laws that effectively put Spooner’s company out of business. The Private Express Statute authorizes the USPS to grant exceptions to its monopoly. In 1979 the Postal Service authorized the delivery of extremely urgent letters outside the USPS; this has given rise to letter delivery service by companies such as Federal Express (FedEx) and United Parcel Service (UPS). These letters must cost at least the greater of three dollars or twice what First Class (or Priority) mail service would cost. See http://www.answers.com/topic/private-express-statutes#ixzz1JHYFjanl
The rise of technology – from faxes to email to e-commerce – and the success of UPS, FedEx and other competitors provide alternatives to the USPS. Although USPS rates are lower than those of private letter carriers, this is because the private competitors must pay the USPS service for the privilege of carrying mail and must charge higher rates than they would but for the provisions of federal law.
Furthermore, the low cost of US first class mail is due in part to its governmental monopoly status. The USPS is a huge operation; its annual revenues of more than $65 billion would rank it number 11 among the Fortune 500 companies if it were a private company. The USPS pays no corporate income tax, no state or local income or property tax and no business licensing tax. It can borrow from the U.S. Treasury at below-market rates and it pays no dividends to shareholders. It is exempt from zoning, customs and tax laws by which its private-sector competitors must abide. See “An Untouchable Monopoly: The United States Postal Service,” by Sean Turner, http://www.nationalcenter.org/P21NVTurnerPostal1003.html
It is not out of the question that the U.S. will privatize the USPS. The British government privatized its postal service in 2013. 18
STREETS, ROADS & HIGHWAYS
Private enterprise can provide streets, roads and highways better and at lower cost, and with greater safety than the political state. We all travel primarily on streets, roads, and highways financed and maintained by the taxation power of a political state. However, construction of these roads is typically by private companies paid for through the mechanism of taxation. Because of our common experience with state roads, private ownership and maintenance of streets may seem unrealistic and impractical to many people at present, but that is only because of lack of familiarity with the concept.
England had a surge of private toll road construction in the 17th and 18th centuries. Between 1786 and 1798, 59 private toll bridge companies were chartered in the northeastern U.S. America had a 100 + year experience with private toll roads between 1792 and 1902. All told, “between 2,500 and 3,200 companies successfully financed, built, and operated [a] toll road [and] . . . the combined mileage of private toll roads that operated at any time was in the range of 30,000 to 52,000 miles.” Quoted from “America’s Toll Road Heritage: The Achievements of Private Initiative in the Nineteenth Century,” by Daniel Klein and John Majewski, published in Street Smart (2006), Chapter 12, page 277. Private toll roads eventually went out of business due to a combination of political, economic and technological developments, of which the most important was a political movement for local governments to abolish private ownership of roads. Klein and Majewski, op. cit. supra, p. 298.
Gated communities exist throughout the U.S. wherein vehicular access to streets within the community is controlled by gates, and sometimes by guards. Streets in gated communities are built and maintained by the real estate developer or a homeowners’ association. Gated communities with privately financed and maintained streets have been in existence in the U.S. since the 19th century. Gated communities afford their residents higher measures of privacy and security because entry may be limited to residents and their approved guests. These residential areas often feature borders of walls or fences around the general perimeter of the neighborhood. See http://www.golfhomeconnect.com/gated-community.html
Guard-gated communities, are staffed by private security guards and are often home to high-value properties, and may be set up as retirement villages. Gated communities exist in a number of countries, including Argentina, Brazil, China, Ecuador, Indonesia, Mexico, New Zealand, Panama, Peru, Philippines, Saudi Arabia, South Africa, Thailand, Turkey, United Arab Emirates, U.K., and the U.S. http://en.wikipedia.org/wiki/Gated_communities#As_a_worldwide_phenomenon
Sixty million people in the U.S. (one in five) already live in private communities. See “Debate Follows Bills to Remove Clotheslines Bans,” by Ian Urbino, New York Times, October 10, 2009, http://www.nytimes.com/2009/10/11/us/11clothesline.html?_r=1&th&emc=th
In the City of St. Louis, since the middle 19th century there have been “private places” in which the streets are owned by a private association that maintains the street, some of them closing one end with a gate for passage control. With greater surveillance complementing the reduced access, there has been less crime in the private places, resulting in higher property values. In St. Louis even some boulevards are privately owned. Some of these private street areas are in lower-class neighborhoods that were experiencing crime and physical deterioration before the residents formed a resident association, partially closed a street and instituted a block watch to decrease crime. Street Smart: Competition, Entrepreneurship and the Future of Roads (2006), anthology edited by Gabriel Roth, p. 306.
There are about 40,000 fatalities each year in the U.S. on the predominantly state constructed and operated streets, roads and highways.
If roads and highways were operated by private enterprise, road operators would have a profit motive to enhance safety and speed of travel by minimizing traffic accidents, which are costly not only to road users but to the road operator as well. Road users have a choice of routes and undoubtedly would prefer the roads offering the best combination of safety and speed. Private enterprise plus technology could devise a variety of ways to make vehicle travel safer on roads and highways, including, but not limited to the following examples:
- Restricting access to exclude known dangerous drivers, drunk drivers or unsafe vehicles by requiring physical, chemical or electronic means of identification of a vehicle, its driver, and the odor of alcohol consumption
- Designing roads for greater safety, e.g. by means of limiting intersections, where many collisions occur, as is already done with freeways where slower moving traffic crosses the freeway by means of an overpass or underpass
- Restricting vehicle speed by technological means built into the street system
- Limiting the number of users of the road at any one time to avoid traffic congestion and the attendant frustration of drivers that may lead to aggressive driving behavior (see discussion of congestion pricing in chapters 6 – 10 of Street Smart [cited above].
At Walt Disney World near Orlando Florida, a private community in a territory as large as the city of San Francisco, all the streets and roads are maintained by the Disney Company. Walt Disney envisioned a better form of city in his “Environmental Project for the City of Tomorrow” (EPCOT) at Disney World. Eventually EPCOT was built as a theme park within Disney World rather than as a separate city.
Private enterprise developed and operated railroads in the United States starting in the 1830s, albeit with federal government subsidy via land grants accelerating the creation of a transcontinental, coast to coast rail line in the 1860s. After the completion of the transcontinental railroad the industry rapidly expanded to a total of 163,000 miles in operation by the 1890s.
James J. Hill proved that government subsidies were unnecessary for building a transcontinental railway. Using entirely private capital he organized construction and development of the Great Northern Railway line 1,700 miles from St. Paul Minnesota to Seattle, Washington.
Railroads were the leading means of transporting people until the 1920s when automobiles and later airplanes began to displace railroads for public transportation.
Urban surface and elevated rail transportation was privately developed in the late 19th and early 20th centuries. Private enterprise developed elevated railways in New York City. The New York City subway system was financed by the City of New York on the premise that underground construction was too expensive for private enterprise, a dubious proposition given the enormous sums of private capital already accumulated in America and put to work in developing every aspect of American industry, such as the nationwide rail network, the steel and petroleum industries, etc. After financing the subways, New York City contracted for private companies to operate them until 1940, when the City took over operation of the entire subway system.
In southern California, beginning in the 1880s, private enterprise, via the Pacific Electric Railway Company and its companion Los Angeles Railway (organized by Henry E. Huntington in 1901) built and operated the world’s largest metropolitan mass transit system, serving four southern California counties, Los Angeles, Orange, San Bernardino, and Riverside, with a vast network of electric railway lines.
At its peak, the Pacific Electric Railway was huge, with 1,150 miles of track covering four counties and 900 railway cars. The Los Angeles Railway, operating just within the City of Los Angeles, had even more miles of track than the Pacific Electric.
After the 1920s, the increasing popularity of the automobile and the later construction of tax-funded automobile “freeways” led to the gradual reduction and ultimate extinction of the Pacific Electric Railway and Los Angeles Railway.
See The Electric Railway Historical Association of Southern California, http://erha.org/
Wikipedia, Pacific Electric, https://en.wikipedia.org/wiki/Pacific_Electric
Wikipedia, Los Angeles Railway, https://en.wikipedia.org/wiki/Los_Angeles_Railway
Fairfax by Night, Pacific Electric Railway Historical Society, http://www.fairfaxbynight.com/pacific-electric-railway-historical-society/
SCHOOLS & EDUCATION
Public schools were instituted in America beginning in the mid-19th century in order to provide education to all, especially children from families who might not be able to afford private schooling.
Although there are some dedicated and inspirational public school teachers, and some public schools that perform well, by and large America’s public schools are failing to provide a good educational experience, especially in the low-income, inner city areas where parents generally have the least financial ability to pay for private schooling.
In 1983 a study done for the U.S, Department of Education concluded: “Our nation is at risk. . . [T]he educational foundations of our society are presently being eroded by a rising tide of mediocrity . . . Our society and its educational institutions seem to have lost sight of the basic purposes of schooling, and of the high expectations and disciplined effort needed to attain them.” 19
According to a 2010 report by ACT, a leading college testing service, only 24% of all 2010 high school graduates had adequate academic preparation for first-year college courses in English Composition, College Algebra, Social Sciences, and Biology. 20 This 24% preparation result is, no doubt, due in part to the large number of students who currently aspire to college but who would be better suited to vocational training for a non-academic skill or trade.
It appears from information summarized briefly below that America would be far better off if education were financed and delivered entirely by private means. In the transition to a totally private system of education, the educational needs of children of low-income families could be provided for by tax-financed vouchers to pay for the schools of their choice.
In all too many public schools dysfunctional behavior by some students creates an atmosphere incompatible with education for students who want to learn. Crime is a problem in such schools. Drugs are widely available. It is not uncommon for violent students to attack fellow students and even teachers. The schools may employ police who stay on campus during school hours to provide security. The school grounds are surrounded by fencing with locking gates, etc. Some public schools are poorly maintained as evidenced by filthy bathrooms and such a lack of school supplies that conscientious teachers spend their own money to buy school supplies for their pupils. That such conditions are fairly widespread is evident from popular motion pictures such as Blackboard Jungle (1955), Stand and Deliver (1988), Lean on Me (1989), and Waiting for Superman (2010).
In recent decades, teachers’ unions have negotiated collective bargaining agreements that make it extremely difficult to terminate teachers for incompetence or misconduct. In Los Angeles, the school district spends about $10 million a year paying teachers who are not working while they appeal their termination for incompetence or misconduct ranging from harassment to sexual molestation of students. The appeals process can last months or even years and often results in a teacher being reinstated who is manifestly unfit for the responsibilities of a school teacher. The teachers union is suing the school district to prevent use of student test scores to evaluate the performance of teachers. See articles by Los Angeles Times reporter Jason Song and others between May 3, 2009 and May 23, 2011, e.g., “Firing teachers can be a costly and tortuous task,” by Jason Song, Los Angeles Times, May 3, 2009, http://articles.latimes.com/2009/may/03/local/me-teachers3
Even where public schools are relatively free of criminal and other social problems of the inner city, public schools in general have a poor record of imparting the basic skills to perform adequately and reliably in the world of work, or in educating adequately those students who aspire to higher education. Over 50% of incoming college freshmen are not qualified to do college level work and 30% of college freshmen drop out of college after the first year.
Given so much dysfunction in the public schools it is no wonder that 17% of America’s 35 million school age children (grades one through twelve) are in private school with another 3% doing home schooling. Parents of such children incur the costs of private education despite paying taxes for public schools.
Public schools are extremely costly. A recent survey of the five largest metropolitan school districts plus Washington, DC found that the average real cost per pupil was $17,850, nearly double the average private school per-pupil cost of $9,200. The six school districts were Phoenix, Los Angeles, Chicago, New York, Houston and Washington, DC. See “They Spend WHAT?” by Adam Schaeffer, Cato Institute, Policy Analysis No. 662, March 10, 2000, http://www.cato.org/pubs/pas/pa662.pdf
Teachers unions have opposed the voucher system, where parents receive vouchers from local government, allowing them to pay for schooling for their children at any public or private school of their choice. In Washington, DC the per-pupil cost of a voucher program has been only 56% of the per-pupil cost of the public schools. 21
Political states have tried for over 2,000 years to assert a monopoly on the issuance of money because control of money gives a state power over the wealth of citizens that is as great as the power of taxation. Through seigniorage and inflation states have confiscated the wealth of citizens stealthily. Seigniorage is the process of creating money with a state decreed value greater than just the cost of creating the money, with the state keeping the difference. Inflation is the process of the state creating money literally out of thin air where the arbitrarily created money is not brought about by new production and does not create new wealth. Via inflation a state takes money from its citizens just as much as through a tax on beer or a tax on incomes. Galambos posits that human society would be far better off if the state had no monopoly on money issuance.
Money was a great innovation in human civilization. It eliminated barter, thus greatly facilitating the exchange of services and goods. A wide variety of tangible property has been used as money, including cattle, salt, silk, furs, dried fish among the primitive monies. Before the innovation of paper money, metal coins—including gold, silver, copper, iron and tin–were used as forms of money.
Even after adoption of metallic and paper money, commodities were sometimes used as money. For example, from 1619 until well after the American colonies obtained independence from Britain, tobacco was used as money in Virginia, Maryland and the Carolinas.
Paper money originated as a receipt from a warehouse evidencing the deposit and storage of valuable commodities in the warehouse. A holder of the warehouse receipt could retrieve his commodities by presenting the receipt to the warehouse. People started using the warehouse receipts as money in preference to going to the warehouse to effect an exchange of goods stored there for other goods or services.
In the 14th century in Europe banks began to issue bank notes, which were promises of a bank to redeem the bank notes for commodities on deposit in the bank, including gold and silver. That was still the practice in the United States until the 1930s where private banks and the federal government issued bank notes payable in gold and silver.
Ideally, a money has four characteristics. It is:
- a medium of exchange,
- a unit of account,
- a store of value, and
- has liquidity in that it can be used to pay for anything else without losing its own value in the exchange.
The U.S. dollar (USD), like all other currencies now issued by the various countries of the world is a fiat money. Fiat is term that derives from the Medieval Latin word fiat, meaning “let it be done.” To enable a state to compel its citizens to use its fiat money, the state adopts a “legal tender” law requiring that its paper money, e.g., the U. S. dollar, shall be accepted in payment of all debts, public and private.
Most people are aware that paper money loses in value over time; and many are aware that the cause of this erosion in value is that the state creates money faster than society creates the wealth on which paper money ultimately depends. Since 1913 the U.S. dollar has lost 95% of its value in relation to the price of consumer goods (as represented by the Consumer Price Index), and 98% of its value in relation to gold.
It is in the store of value characteristic that fiat money is deficient, because the political state by enforcing a monopoly on issuance of money can, and usually does create money to finance more spending than can be done solely through taxation. This is why state inflationary devaluation of its money is likely to be most rapid during time of war.
The political state need not be the sole issuer of money, and at times in history has not even been the principal issuer of money in a number of countries, especially in the case of a weak political state. In China from the 7th century and in Europe from the 14th century, private banks issued paper money in the form of bank notes as a receipt for precious metals or valuable goods and commodities on deposit with the bank. The bank notes circulated as money because they could be exchanged for goods and services in reliance on the promise of the bank to redeem the notes in gold, silver or other things of value.
Private issue banknotes were in use as money in the U.S. before 1862. In England from the 1780s to 1821, due to a shortage of coinage from the Royal Mint, factory owners and other manufacturers minted their own coins to pay workers, and these coins circulated as money. 22 In some border areas between countries, e.g., the U.S. and Canada, the money of each country is in circulation and accepted in the other country as payment of goods and services. In many countries the U.S. dollar is in circulation among citizens as a more reliable form of money than that of their own country.
People, especially residents of very large countries such as the United States, are so used to their own country’s state issued paper money that most think that such money is “the” money and there is no other. That is not true. Residents of a number of small countries are used to the idea that they can store their wealth in foreign currencies and precious metals. Today, through the mechanism of the stock market Americans and residents of other countries can store wealth in a variety of monies and money substitutes including any of the leading currencies of the world and in valuable commodities such as precious metals and petroleum.
In the future, as the modern social welfare state breaks down due to over-promising and under-delivering, so will state fiat money come to be viewed with disdain and replaced by more reliable forms of money made available by private issuers.
EPCOT CENTER AT WALT DISNEY WORLD
AS A PROTOTYPE FOR THE CITY OF THE FUTURE
After the immediate and continuing success of Disneyland, which opened in Anaheim, California in 1955, Walt Disney was struck by the contrast between the clean and attractive environment within the Disneyland park and the disorderliness, congestion, pollution, crime and grime of even so modern and prosperous an urban area as greater Los Angeles.
Disney had a dream of a much larger version of Disneyland, a community that was much more than an amusement park. He said, “I don’t believe there’s a challenge anywhere in the world that’s more important to people everywhere than finding solutions to the problems of our cities. But where do we begin? . . . How do we start answering this great challenge?”
With that thought in mind Disney evolved the plan of building an ideal city. He chose an area in northern Florida, and the Disney Co. quietly began acquiring the land which eventually became Walt Disney World Resort (Disney World) near Orlando, Florida.
Mr. Disney named this new development the Experimental Prototype Community of Tomorrow (EPCOT), envisioning a perfect city with dependable public transportation and an environment enriched in education and expanding technology. Unfortunately, Mr. Disney died when EPCOT was still in the early planning stages. The directors of the Disney Co. opened Disney World in 1971, six years after Mr. Disney’s death, and sixteen years after the opening of Disneyland in California.
In Walt Disney’s own words, he imagined that “EPCOT . . . will take its cue from the new ideas and new technologies that are now emerging from the creative centers of American industry. It will be a community of tomorrow that will never be completed, but will always be introducing and testing and demonstrating new materials and systems. And EPCOT will always be a showcase to the world for the ingenuity and imagination of American free enterprise.”
Walt Disney’s vision of EPCOT was a small city for twenty thousand residents, with businesses and commercial areas at its center, community buildings and schools and recreational complexes around it, and residential neighborhoods farther out. Transportation was to be provided by monorails and PeopleMovers (like the one in Disney World’s Magic Kingdom’s Tomorrowland). Automobile traffic would be kept underground, leaving pedestrians safe above-ground.
Walt Disney said, “It will be a planned, controlled community, a showcase for American industry and research, schools, cultural and educational opportunities. In EPCOT, there will be no slum areas because we won’t let them develop. There will be no landowners and therefore no voting control. People will rent houses instead of buying them, and at modest rentals. There will be no retirees; everyone must be employed.” The original model of this vision of EPCOT can be seen in the Tomorrowland Transit Authority attraction in the Magic Kingdom park at Disney World.
After Disney’s death, the directors of The Walt Disney Company decided that they did not want to be in the business of running an entire city. However, the idea of EPCOT was instrumental in prompting the state of Florida to create a legal mechanism which allows the Walt Disney Company to exercise governmental powers over the whole Walt Disney World Resort. Within Disney World EPCOT Center was opened in 1982 as a theme park rather than a city.
Although Disney World and EPCOT did not fulfill Walt Disney’s dream, the completed Disney World Resort provides some idea of what could be done in creating and operating a large community entirely via private initiative.
Walt Disney World comprises 47 square miles, twice the size of Manhattan and about the same area in size as the city of San Francisco. Within Disney World, The Walt Disney Co. provides all roads, utilities, bus and monorail transportation, hotels, police and fire protection. The state of Florida provides no services other than elevator inspections at the Disney World hotels. Over 25 million annual visitorsmake Walt Disney World the most popular entertainment destination on earth.
Disney World is not an isolated example. Sandy Springs, Georgia, a suburb of Atlanta, Georgia, is a town of 94,000 that has only seven city employees. Except for the job of City Manager, and the town’s police and fire department, all other municipal services are provided by contracts with private companies. 23
Weston, Florida, population 65,000 is a town that began as a series of gated communities. The Weston Homeowners Association (HOA) maintains all of the infrastructure, roadways and landscaping within the community.
There are a number of gated communities in the U.S. where some governmental services are provided by a homeowners’ association. For example, in Hot Springs Village, Arkansas, a Property Owners’ Association provides on-site police, fire and ambulance services as well as water, wastewater, recycling, and sanitation. Hot Springs Village, with about 8,000 residents is the largest gated community in the U.S.
Without the political state, you may ask, how could we defend ourselves against external aggression? How could we be protected from real and potential attacks, such as the Japanese attack on the American navy at Pearl Harbor, Hawaii, on December 7, 1941 that marked the beginning of war with Japan, the terrorist attacks on New York City and Washington, DC on September 11, 2001, or the threat of attack by nuclear fission bombs delivered by ballistic missiles launched by hostile forces?
Politics and political states create war. A common definition of war is armed conflict between nations. The German military theorist, Carl von Clausewitz, observed that war is merely a continuation of politics by other means. Civil wars arise when a political movement gets bold and strong enough to attack the state in which it originates, for example the ferocious civil war of 1918-1921 in Russia which caused an estimated 12.5 million fatalities.
Religion has been another perennial cause of war, specifically the belief espoused by some religions that theirs is the one true belief in the one true God. This idea has been the source of violence, terror and warfare, not only between different religions, but also between different branches of the same religion.
A large-scale criminal organization could also cause war when it becomes powerful enough to challenge the authority of a political state by attacking the state, as is happening now in the violent conflict between rival drug cartels and the government of Mexico.
Although the United States of America was founded, in part, to protect Americans from being dragged into the wars waged by the Kings of England, the United States has not been remarkably successful in protecting its citizens from war. The U.S. has been involved in ten wars, one every generation, since the end of the War for Independence in 1781.
The U.S. government failed to protect America from a huge war with Japan despite 32 years advance warning that the empire of Japan was planning to attack America militarily in the Pacific. The warning was given in a perceptive book published in 1909, The Valor of Ignorance by Homer Lea. While a few leading American military men studied the book and heeded its message, Lea’s warning was disregarded by U.S. political leaders. America was unprepared for the 1941 Japanese attacks on the Philippines and Hawaii. America’s lack of preparedness invited aggression by Japan, given the military and geopolitical ambition of the empire of Japan to dominate the entire Pacific ocean region. However, Lea’s book was influential in Japan, as there it buttressed a belief that America’s lack of preparation to oppose Japanese ambitions would make it feasible for the Japanese military to eliminate America as an obstacle to Japan’s imperial ambitions in east Asia.
America’s political leadership before World War II disregarded a central premise of The Art of War, the famous Chinese military book of 2,500 years ago. According to that book the highest form of military success is to avoid fighting because potential adversaries are afraid to attack; i.e., deterrence is the best defense. Historians have concluded that the Japanese political and military leaders knew before they attacked the U.S. that America’s large population and industrial productivity doomed Japan to defeat in a protracted war with the U.S. The Japanese militarists hoped only to intimidate the U.S. into accepting the supremacy of Japan in the western Pacific.
National defense is a problem now in this period of transition from a world of political states to an advanced civilization where the state will have gone out of existence all over the world—a prospect we foresee once the idea of true freedom and proprietary defense of property becomes firmly established globally.
America has been involved in ten wars since our War for Independence. Military commentator and historian Max Boot commented that “. . . most American wars are wars of choice. Presidents have used force hundreds of times since 1789. How many of those were unequivocally necessary for national survival? The Civil War and World War II, perhaps–and no others.” 24 A good case can be made that except for the War for Independence, every one of America’s wars was either unjustifiable or unnecessary in whole or in part, a proposition to be supported by evidence and argument later in this essay.
To the extent that the U.S. has prevailed, eventually, in all wars except the Vietnam War, American victory was due not to the capabilities of the political state, but rather to the enormous productivity that America developed in the 150 years following independence from Britain. In all our wars, the soldiers were mainly civilians who were drafted into or enlisted in the military; the military equipment and supplies were produced by American industry, and American civilian science and technology provided an eventually important advantage over our military opponents.
In sum, our political system got us into wars, or failed to deter attacks upon us, but it was America’s people, its industry and productivity that enabled America to prevail, but at tremendous cost in lives and property.
As we will contend in detail further below in this essay, it is the coordination of people, intelligence, industry and productivity via non-political means that can provide a superior defense against aggression than can the political state.
We provide just one recent example here. The attacks of September 11, 2001 were made by religiously motivated and suicidal terrorists who hijacked commercial airline flights operated by American air transport companies and flew them into landmark public buildings in New York City and Washington, DC. Because those attacks were planned and carried out by a terrorist organization based in Afghanistan, the U.S. in October 2001 commenced a war in Afghanistan that as of 2012 had been going on for more than ten years. Had there been no hijacking of the American airplanes, it would have been unnecessary for our country to go to war in Afghanistan.
America could have prevented the hijacking of the airline flights on September 11, 2001 by using well-known passenger screening procedures used by El Al, the Israeli airline. An El Al plane was hijacked in 1968. Since then no El Al plane has been hijacked despite the fact that Israel and its airline are prime targets of terrorist attacks launched from heavily populated neighboring states. Security measures developed after the 1968 hijacking have made El Al the safest airline in the world. No passenger is allowed to board an El Al plane until El Al is certain that the would-be passenger poses no threat. Had that type of security been in use by U.S. airlines in 2001 to prevent dangerous passengers from boarding U.S. airlines there would have been no September 11, 2001 attack and no U.S. war in Afghanistan.
Commercial flights into the U.S. originate from all over the world. It would be expensive to screen passengers on all such flights. But such expense pales into insignificance compared to the potential damages from a successful repetition of the attacks of September 11, 2001 and the even greater expense of another war like the one the U.S. prosecuted in Afghanistan.
Attack by long-range missiles carrying nuclear bombs remains a danger emanating from aggressive states and terrorist organizations. Since the development and deployment of such missiles during the 1950s the policy of the U.S. was to deter their hostile use by having the capability of retaliation in kind. However, that would not be a defense to a fanatical and suicidal enemy such as the dictator of Nazi Germany, elements of the Japanese military in the Imperial Japan of World War II, or contemporary terrorists motivated by religious and suicidal zeal.
However, in the 1930s Nikola Tesla (1856-1943), author of world-transforming inventions and discoveries in electricity, claimed the ability to develop a directed particle beam of energy, similar to a laser, that could destroy hostile airplanes and ships two hundred miles away. 25 Over the past fifty years technological advances in science and industry, particularly in lasers, seem likely to have fulfilled Tesla’s idea, making it increasingly feasible to identify missile launch sites anywhere on the planet and to destroy missiles on launch, in their boost phase, or even in mid-orbit.
The Boeing Company developed and tested successfully in 2010-2011 an airborne laser with a 200 mile range that achieved the capability predicted by Tesla. 26 The Boeing airborne laser was developed under the strategic defense initiative inaugurated by the U.S. in 1984 27 and the U.S. National Missile Defense Act of 1999 which states that: “It is the policy of the United States to deploy as soon as is technologically possible an effective National Missile Defense system capable of defending the territory of the United States against limited ballistic missile attack . . .” 28
Such technological achievements show the capabilities of science and technology for defensive purposes. Unfortunately, however, the state is not a reliable institution for defense, as demonstrated in 2011 by the cancellation of U.S. funding for further development and deployment of the Boeing airborne laser system. 29
THE WITHERING AWAY OF THE STATE IN HISTORICAL CONTEXT
The communist ideologue, Karl Marx, predicted that under communism the state eventually would “wither away,” a phrase that may be remembered after everything else Marx taught has been forgotten. History is replete with examples of political states and civilizations that have declined then sunk into oblivion, e.g., as described in Edward Gibbon’s The History of the Decline and Fall of the Roman Empire (1776-1788).
At present, the modern social welfare political state is in process of self-destruction everywhere it exists. In the United States (as elsewhere) this decline is manifested in the financial distress that has been increasing at every level: federal, state and local. Many of the states of the United States currently are running fiscal deficits and are therefore cutting back basic state functions. For residents of the state of California, the total aggregate of federal, state and local government spending per household is now $49,000 per year, an amount that approaches total average household income.
Such a level of state spending cannot be provided solely by current taxation, as taxpayers would be unable to live on the remnant of their income left after taxes. State spending at the current level can be, and is only, being financed in large part through borrowing, which must be paid by future generations. However, the level of state borrowing is now so high, that future generations may reject the debt burden inherited from their forebears. In any case–payment of the legacy of a mountain of debt–or its repudiation, society would suffer grievous losses, social instability, and the destruction of much of the property and prosperity built up over past generations.
As of 2011 about 40% of current federal spending is funded by borrowing, with only the remaining 60% funded by current tax revenues. If the U.S. federal state does not get its national debt under control, the result will be a crisis that could dwarf the financial crisis of 2008. That is the publicly stated opinion of (1) the Congressional Budget Office; (2) a bi-partisan commission appointed by the current President; and (3) an open letter in March 2011 signed by ten economists from both major political parties, each of whom had served as Chair of the White House Council of Economic Advisors.
Even Congress is becoming aware of the need for turning away from the path of ever increasing debt. The U.S. Senate voted 97-0 in early 2011 to reject the President’s proposed budget for following year with its projected one-year deficit of $1.6 trillion and no cuts in federal spending.
Unless the U.S. reduces spending and raises taxes, growing budget deficits will cause U.S. federal debt to rise to unsupportable levels that could cause financial crisis. Federal spending has gotten so far out of hand that raising the income tax will be of no avail. Households reporting incomes over $100,000 per year already pay most of the federal income tax. However, even if the federal income tax rate on incomes over $100,000 was raised to 100%, a virtual impossibility, it would not be enough to cover the current annual federal budget deficits.
In addition, the U.S. has unfunded future liabilities for social welfare programs that, together with the acknowledged national debt, at present come to $62 trillion, an amount that exceeds the aggregate net worth of American households. The International Monetary Fund warned in 2004 that for the U.S. to meet its social welfare commitments, taxes would have to be doubled, or benefits cut in half. 30
As dire as these circumstances appear, there is a bright side to the financial problems of the state, namely that people acting individually and cooperatively can replace all the functions that the state has carried on, such as fire protection; police protection; mail; streets, roads and highways; mass transit; schools and education; money; building cities of the future; and providing defense against external aggression. To these we would add the financing of affordable health care for all and old age income security, subjects to be discussed further along in this essay.
Total proprietary government and services is not a utopian dream. Some are already in existence and the rest could spring into being when the state relinquishes its activities. In the relatively long span of human history we have only recently begun to understand how to organize society in a non-coercive and mutually profitable way.
Planet earth is 4.6 billion years old; life on earth came into existence 3 billion years ago; human-like beings date back just one million years; and our species, homo sapiens, has been on the scene little more than 100,000 years. Fire was harnessed only in the last great ice age, 400,000 years ago. With the end of that ice age humans created agriculture 12,000 years ago. Writing dates back 6,000 years and the invention of the wheel 5,500 years.
Science traces its origins to the Greeks of 2,500 years ago and modern mathematics to the innovation of the zero and positional notation in India 1,500 years ago.
It was only a little over 300 years ago that Isaac Newton (1642-1727) integrated prior knowledge of the physical sciences into a unified, comprehensive whole, which inspired and enabled the development of the industrial revolution and increasingly rapid advances in science and technology.
In 1903 Wilbur and Orville Wright achieved one of the greatest technological inventions in history, heavier-than-air flight. Between 1905 and 1915 Albert Einstein (1879-1955) achieved the greatest advances in science since Newton, with publication of his theories of relativity and quantum physics which vastly deepened human understanding of the cosmos and opened the way to development of nuclear power.
Since 1940 communication has been improved remarkably by discoveries and developments such as digital computers utilizing the binary numbering system, transistors, semiconductors, integrated circuits and the Internet.
Unfortunately, there has been so far no progress in human social interaction comparable to the advances in science and technology. From anthropology we know that with the emergence of tribal living people were ruled by tribal chiefs and also by witch doctors (who had a position of power second only to the tribal chief). The tribal chief ruled by force, while the witch doctor exercised power by claiming connection with the gods that inhabited the unseen spirit world.
As people gathered in larger communities they were ruled by monarchs (kings, emperors, etc.) who functioned much like tribal chiefs, ruling by force. In monarchies the counterpart of the witch doctor was organized religion, an institution which claimed the role of acting as mediator between humans and deities.
A common characteristic of monarchies was tyranny and perennial warfare, for example as portrayed in the eleven historical plays of William Shakespeare (1564-1616) about the monarchs of England, covering a period of 500 years up to the time of Queen Elizabeth I.
However, there are relatively recent developments that point the way to progress in the social interaction of mankind. Monarchy was made ideologically obsolete by thinkers inspired by the Newtonian concept of the universe. Newton’s friend and admirer John Locke (1632-1704), announced the revolutionary idea that the function of the state is to serve the people, not to rule them. Thomas Paine (1737-1809), inspired by the ideas of Newton and Locke, stimulated Americans to reject monarchy only a little over 200 years ago. The right of people to replace an unsatisfactory government is implicit in Locke’s thought and explicit in the ideas of Thomas Paine.
America’s great philosopher of freedom, Henry David Thoreau (1817-1862), taught that the government which is best is that which governs not at all. Thoreau was arguing not for anarchy, but for elimination of the tyranny of the state imposed by any means, including the tyranny of the majority in a political democracy.
CARING FOR THE NEEDY AND HELPLESS
IN THE TRANSITION TO A TOTALLY STATELESS SOCIETY
The modern social welfare state has its genesis in the understandable desire to care for needy and helpless people by assuring that they will have the basic minimum security of food, clothing, shelter and medical care. However, in the United States and probably in every developed country, social welfare programs are proving so costly that they cannot be sustained. The benefit to society in caring for the needy and helpless is in danger of being outweighed by the cost to the rest of the people, who will be taxed more and more heavily, so much so that many will be unable to provide for themselves.
There is a reason for this disparity between cost and benefit of social welfare programs, and that reason is politics. To procure the votes needed to enact and continue social welfare programs they have been designed to offer benefits not only to the poor but also to the middle class that holds most of the voting power. The most costly programs in America, Medicare and Social Security, have become middle class entitlement programs that pay benefits to everyone who reaches age 65, regardless of their own means.
Furthermore, American Medicare and Social Security, though presented as insurance, violate the basic principles of insurance. For insurance to be worthwhile, the insurer must be able to provide the promised benefits indefinitely. To do so, in every kind of insurance, from automobile to property, to life and health insurance, insurers use actuaries to determine the future cost of benefits, and underwriters to price the charges to the insured. Insurers collect payment in advance of the need to pay claims, using their revenues not only to pay current claims but to provide a financial reserve to pay future claims.
Social Security and Medicare do neither actuarial future cost analysis nor underwriting to establish charges to the insured. Consequently, as of the end of fiscal year 2009 of the federal government, between them these two programs have incurred unfunded future liabilities of approximately $45 trillion—which is 45,000 billion dollars. Those federal obligations amount to nearly 75% of the real total debt of the U.S. government. Together with federal “public debt” of some $14 trillion and other obligations, the U.S. total debt and liabilities are now $62 trillion, an amount that exceeds the net worth of the 114 million or so U.S. households.
A few simple, but highly political and controversial changes in federal law could solve the problems of runaway Medicare and Social Security obligations. In the case of Medicare, convert this program to one of vouchers enabling recipients to buy personal insurance that is both non-cancellable and guaranteed issue irrespective of preexisting medical conditions. Treasury’s liability would be limited to the cost of each year’s vouchers. The risk of future cost increases would be assumed by insurance companies and the insured. Only people with income below a specified level would be eligible to receive such vouchers, because people with higher incomes have the means to pay for their own insurance.
In the case of Social Security, a similar approach would reduce costs greatly. Limit recipients of Social Security to those with incomes below a specified level. Further restrict Social Security benefits to those now receiving them who don’t have other means of sustenance and to those still working but too old to save enough to accumulate adequate funds for subsistence during retirement years.
The foregoing approach would not make taxpayer funded retirement benefits and health care available to all, but would allow the U.S. to survive financially during the transition to a totally private system of financing the social welfare “safety net” for the needy.
In the current political debate in the U.S. some say that the financial problems of Medicare and Social Security can be fixed by raising taxes and cutting benefits. That approach does not appear feasible, economically or politically. According to advice to the U.S. government from the International Monetary Fund, these benefit programs cannot be maintained over the long-term future unless benefits are cut in half or taxes are doubled, both unlikely prospects.
In the long run increasing wealth and productivity is the essential solution to providing for the needy and helpless. The wealthier a society, the more it can find the means for caring for the less fortunate. For a society to grow increasingly wealthy, individuals must be allowed to keep the fruits of their labor and to save, accumulate personal wealth and invest for the future. The modern welfare state has created a heavy and growing burden on present and future generations—a burden that will prevent many, many people from providing adequately for themselves.
Furthermore, social welfare programs breed dependency in vast numbers of people who could earn and provide for themselves but for the disincentives to work and the impediments to saving and investing for the future inherent in the modern welfare state and its system of taxing and spending.
- See http://www.rmfire.com/aboutus.html ↩
- According to the company’s website, http://www.ruralmetro.com/about_communitiesserved.asp ↩
- http://www.amatecon.com/etext/lpls/lpls-ch5.html ↩
- http://www.amatecon.com/etext/lpls/lpls-ch5.html ↩
- http://reason.org/blog/show/fire-services-contractor-opts ↩
- See “Private fire crews find rich niche: Insurers are sending in teams to help save the homes of well-off clients; public agencies aren’t always pleased,” by Catherine Saillant and Jia-Rui Chong, Los Angeles Times, 11-24-08, http://articles.latimes.com/2008/nov/24/local/me-wildfire-private-insurance24http://articles.latimes.com/2008/nov/24/local/me-wildfire-private-insurance24. ↩
- Goldstein, Amy, “More Security firms getting police powers,” San Francisco Chronicle August 8, 2010. http://www.sfgate.com/cgi-bin/article.cgi?file=/c/a/2007/01/07/MNGVENCASV1.DTL. ↩
- See The Private Security Industry: A Review of the Definitions, Available Data Sources, and Paths Moving Forward, National Criminal Justice Reference Service (NCJRS), December 2010, https://www.ncjrs.gov/pdffiles1/bjs/grants232781.pdf NCJRS is a federally funded resource offering justice and drug-related information to support research, policy, and program development. https://ncjrs.gov/whatsncjrs.html ↩
- Quoted from the website of Securitas AB a Swedish-based security company active in America and fifty other countries around the world. See http://www.securitas.com/en/About-Securitas/A-growing-global-industry/ ↩
- Currently, a number of states use ignition interlock devices which are installed into vehicles of past drunk driving offenders. These devices require the driver to exhale into the system to check for blood alcohol concentration before the engine can be started. See “Government investing in touch-based in-vehicle alcohol detection devices,” Consumer Reports, September 26, 201, http://news.consumerreports.org/cars/2011/09/government-investing-in-touch-based-in-vehicle-alcohol-detection-devices.html ↩
- See Experian, at
- See “Everything you need to know about the NSA’s phone records scandal,” by T. Lee, The Washington Post, June 6, 2013,
- See Three Felonies a Day: How the Feds Target the Innocent (2009, 2011) by Harvey A. Silverglate ↩
- http://www.latimes.com/news/nationworld/world/la-fg-somali-pirates-20130602,0,6582480.story ↩
- See Goldhill, David, Catastrophic Care: How American Health Care Killed My Father–and How We Can Fix it (2013), which is an expanded treatment of “How American Health Care Killed My Father,” by David Goldhill, The Atlantic, September 2009, http://www.theatlantic.com/magazine/archive/2009/09/how-american-health-care-killed-my-father/7617/ ↩
- See “Incarceration Nation,” by Fareed Zakaria, Time, March 22, 2012, http://globalpublicsquare.blogs.cnn.com/2012/03/22/zakaria-incarceration-nation/ ↩
- See Benson, Bruce L. The Enterprise of Law: Justice Without the State (1990) and Benson, Bruce L. To Serve and Protect: Privatization and Community in Criminal Justice (1998). ↩
- Since 1516 the government of Britain provided postal service through Royal Mail. In 2013 shares in Royal Mail were issued to public investors pursuant to a privatization plan authorized by law in 2011. 60% of the shares were issued to public investors, 10% were given without charge to postal service employees, and the U.K. retained 30% of the shares. 31 Wikipedia, Royal Mail,” http://en.wikipedia.org/wiki/Royal_Mail and “Private investors rush to Royal Mail,” by Brian Groom, Financial Times, October 9, 2013,http://www.ft.com/intl/cms/s/0/e3962778-3102-11e3-b478-00144feab7de.html#axzz36HG0CoGn ↩
- Quoted from “A Nation at Risk,” April 1983, National Commission on Excellence in Education, U.S. Dept. of Education, http://www2.ed.gov/pubs/NatAtRisk/risk.html] ↩
- 2010 ACT Report: The Condition of College and Career Readiness, http://www.act.org/research/policymakers/cccr10/policies.html ↩
- See “School Vouchers are a Cost-Saver for Taxpayers,” by J. VonderHaar, Heartland Institute, http://www.heartland.org/article/25880/School_Vouchers_Are_a_CostSaver_for_Taxpayers.html ↩
- See Selgin, George, Good Money: Birmingham Button Makers, the Royal Mint, and the Beginnings of Modern Coinage, 1775-1821 (2008) ↩
- “A Georgia Town Takes the People’s Business Private,” by David Segal, New York Times, June 23, 2012, http://www.nytimes.com/2012/06/24/business/a-georgia-town-takes-the-peoples-business-private.html?_r=1&pagewanted=all ↩
- Quoted from “Mr. Gates’s Farewell: In retiring a defense secretary speaks his mind as few Washington officials ever have,” by Max Boot, Commentary magazine, September 2011. ↩
- Cheney, Margaret, Tesla: Man Out of Time (1981), page 256. O, Neill, John J., Prodigal Genius: The Life of Nikola Tesla (1944 and 1978), pages 238-241. ↩
- See “Integrated Defense Systems—Airborne Laser” at http://www.boeing.com/defense-space/military/abl/index.html ↩
- http://en.wikipedia.org/wiki/Strategic_Defense_Initiative ↩
- National Missile Defense Act of 1999 (Public Law 106-38). ↩
- http://en.wikipedia.org/wiki/Boeing_YAL-1 The U.S. spent around 0 billion on the Space Defense Initiative from its inception to 2011. http://www.thefullwiki.org/Strategic_Defense_Initiative That 0 billion represents about 0.2% of the over trillion in federal spending since 1984. ↩
- U.S. Fiscal Policies and Priorities for Long-Run Sustainability, Martin Mühleisen and Christopher Towe, Editors, International Monetary Fund (2004), http://www.imf.org/external/pubs/nft/op/227/index.htm ↩