Crazy Equilibria: From Democracy to Anarcho-Capitalism By Bryan Caplan

Imagine advocating democracy a thousand years ago. You sketch your basic idea: “Every few years we’ll have a free election. Anyone who wants power can run for office, every adult gets a vote, and whoever gets the most votes runs the government until the next election.” How would your contemporaries react?

They would probably call you “crazy.” Why? Before you could even get to the second paragraph in your sales pitch, they’d interrupt: “Do you seriously mean to tell us that if the ruling government loses the election, they’ll peacefully hand the reins of power over to their rivals?! Yeah, right!”

A thousand years later, the planet is covered with democracies. In most of them, defeated incumbents consistently make the “crazy” decision to peacefully walk away from power. In long-standing democracies, this pattern is so familiar we take it for granted. But we shouldn’t. The viability of democracy is an amazing fact that begs for an explanation.

My explanation begins with a thought experiment. Picture a defeated incumbent in, say, Sweden. He summons his cronies to say, “So we lost a stupid election. Big deal! I say we refuse to cede power. If anyone protests, let’s kill them.” How would his cronies respond?

At first, the cronies would think their leader was joking. A bad joke, but a joke. If he persisted, though, the cronies would deem their leader crazy. The only help they’d offer would be to call his family… or a psychiatrist. If the Swedish leader pulled out a pistol and said, “If you’re not with me, you’re against me,” his cronies would summon the police. If he kept waving his pistol around, the Swedish police would arrest him. End of coup.

The lesson: “Crazy” is relative to expectations. A thousand years ago, everyone was used to despotism. No one expected a defeated incumbent to voluntarily hand over power. As a result, refusing to hand over power didn’t seem crazy. Since it didn’t seem crazy, incumbents who refused to hand over power after losing an election probably would have managed to retain power. In modern Sweden, in contrast, everyone is used to democracy. Everyone expects a defeated incumbent to voluntarily hand over power. Refusing to hand over power seems crazy. As a result, refusing to hand over power would end not democracy, but the incumbent’s career.

Why bring this up? Because like the democrat of a thousand years ago, I advocate a radical political change: anarcho-capitalism. After we’ve privatized everything else, I think we should privatize the police and courts, and abolish the government.

I know how crazy that sounds. I also know I’m not going to change anyone’s mind about this in a blog post. This post has a more modest goal: to convince skeptics that one prominent argument against anarcho-capitalism is greatly over-rated. The argument: “Do you seriously mean to tell us that privatized police companies will peacefully settle disputes, instead of attacking each other until one firm becomes the new government?! Yeah, right!”

Given current public opinion, this awful outcome is awfully likely. Everyone is used to the existence of government. If the police were suddenly replaced by a dozen private police firms, people would expect CEOs to say, “Let’s attack the competition and become the new government.” Since people would expect this, many CEOs would expect such a proposal to succeed – and some would advocate it. Since these CEOs wouldn’t sound crazy, many of their underlings would go along with their plan – and their plan (or a rival’s) would probably come to fruition.

So far, so bad. Suppose however that a stable anarcho-capitalist system existed. Then this logic reverses. Since everyone is used to this system, people expect private police firms to amicably resolve disputes. In such a setting, a CEO who advocates a war of conquest would seem crazy – and his pleas to his co-workers would fall on deaf ears. In a stable anarcho-capitalist society, a war-mongering CEO doesn’t get a war. He gets fired.

Since we’ve never had anarcho-capitalism, this peaceful equilibrium sounds like wishful thinking. But it’s no more wishful thinking than stable democracy. Both systems sound crazy when first proposed. Neither can be stable as long as people expect them to be unstable. But both can be stable once people expect them to be stable.

You could object: The expectations necessary to sustain anarcho-capitalism are highly unlikely to ever arrive. But the same was true for democracy a thousand years ago. Yet somehow, expectations radically changed and stable democracy arrived. How did expectations change so dramatically? It’s complicated. But can expectations change dramatically? Absolutely.

HT: Bill Dickens, for calling anarcho-capitalism “nonsense” on FB. 🙂