A Though Experiment: What Would a Perfect Libertarian State Look Like a Hundred Years Later?

byMike Kimel [edited to make authorship clearer]

Libertarians come in many flavors, but I think most of them would agree that in an ideal world, the government would be very small and have limited powers – essentially, the government would control national defense and perhaps adjudicate over property rights disputes (i.e., maintain police and/or the courts). Otherwise, people would be free to engage in whatever activities they wished provided the specific purpose of that activity was to harm a third party. Based on conversations with libertarians, I believe negative externalities, or inadvertent harm to third parties is OK. I have yet to have a discussion with a libertarian and come away thinking: now this is a person who views negative externalities as an intrusion on someone else’s private property requiring government intervention to halt. (If I am incorrect about this, I’ll be happy to stand corrected… but it has little effect on the rest of this post.)

Now, one of the side effects of a very small, laissez-faire government is that tax rates will be very low. This means that the accumulation of wealth will be faster for those with a comparative advantage at creating goods and services other people want to buy. (I’m ignoring this effect, which is easy to verify empirically, but then libertarians believe lower taxes result in faster economic growth and I want to focus on their assumptions here.)

Furthermore, without an inheritance tax or estate tax (I think it is fair to say most, perhaps even all libertarians are against these types of taxes), fortunes would pass on more intact from one generation to the next than we see happening today. In such a world, the accumulation wealth over two or more generations could allow a person or family to accumulate a greater percent of a given area’s wealth than we see happening today.

But… the libertarian world is one without public infrastructure. So who would build or own the roads in a given area? Well, it won’t be folks who don’t have any money, that much is evident. Presumably those who otherwise have accumulated significant resources… such as a person or a family that controls a sizable piece of the wealth in that area.

Now, a lot of types of infrastructure, such as roads, electric grids, and the like, have significant first mover advantages. There may be a lot of traffic on a road from A to B, or an electric grid serving the area, and monopoly rents could easily be extracted. If a second mover built a duplicate road or electric grid, it would harm the first mover… but it also wouldn’t happen, because the second mover knows the price war would make it impossible for it to profit as well.

This, by the way, isn’t pie in the sky theorizing or guesswork. We’ve seen precisely that in the real world. For example, in the years following the 1996 Telecom Act, incumbent phone companies were deathly afraid that their network would be duplicated… and except for a few BLECs in big cities (most of which promptly went under even so) there was no replication of the last mile. Similarly, you don’t see replication of the last mile in the electricity industry, which I mention because when it comes to deregulation, the electricity industry is where telecom was in the late 1990s. (Yes, it is not a perfect analogy, but electricity and phone calls aren’t the same thing.)

We do, occasionally, see the private provision of toll roads, but usually after the owner of that toll road extracts a promise from the government to reduce maintenance of any competing publicly owned road. Which means… in any given area, there isn’t going to be competition in the provision of roads and other infrastructure.

This is important for a combination of two reasons. The first is that a monopoly extracts monopoly rents. Monopoly rents, of course, will increase and speed the process by which wealth is concentrated, and, as most libertarians will tell you, monopoly rents create market inefficiencies. But movie theaters run their own concession stands, and if you want to set up a snack bar in a Wal-Mart, you better expect to turn over most of your profits to Wal-Mart. Unless there are rules preventing it (not likely in a libertarian paradise), the owner of the infrastructure calls the shots, deciding who can and who cannot do business.

But the second problem with a monopoly in roads and other infrastructure is far more important. It means, simply put, there is no voting with one’s feet if the road owner chooses to prevent it. (Of course, the next region over might be run the same way anyhow.) So if you don’t like the way the people that own the roads and the markets and the apartment you rent do business, you can’t exactly up and leave without using their road or otherwise cutting across their land. And if they don’t let you do it, well, you’re breaking the law… and the Pinkertons could easily prevent you from doing that. The average person, the person not born into resources, could be left with one option to full cooperation – loss of shelter, food, and even membership in society.

Now, if this sounds unrealistically dystopian to you, remember that it took far less coercion than that to keep people tied to Company Towns not a hundred years ago in this country. The Company Towns did not own the roads or the land once you were out of town, the only chains were financial.

The road to serfdom is very pretty when you first get on it, so much so that those who are most vocal in warning us about the perils of where it leads don’t realize that’s the destination they’re promoting.