Anarchism is a theory of society without the state in which the market provides all public goods and services, such as law and order. Although most anarchists oppose all large institutions, public or private, anarcho-capitalists oppose the state, but not private actors with significant market power. For evidence that this system is workable, anarchocapitalists point to the 19th-century American West, medieval Iceland, and Anglo-Saxon England.

Because anarcho-capitalism is predicated on a capitalist economic system, it requires markets, property, and the rule of law. (Many anarchists reject one or more of these elements. Some of those objections are discussed later.) Anarcho-capitalists believe that private entities will provide those goods and services necessary for society to function in peace and good order without the existence of a state that coerces individuals into paying for or obeying legal institutions.

Consider the anarcho-capitalist solution to the need for law and order. We can decompose law and order into a set of discrete services: rule production, protection (deterrence of rule violations), detection (capture of rule violators), adjudication (determination of guilt), and punishment. In most modern societies, these services are bundled together by the state, which requires all taxpayers to purchase the bundle. All of these services are economic goods. Bruce Benson discusses the issues surrounding the market provision of legal systems in detail, including descriptions of the extent to which many law services are already market-based.

Anarcho-capitalists often point to the commonwealth period of Icelandic history (930–1264 A.D.) as the best example of an anarcho-capitalist society. Economist David Friedman, for example, concluded his description of medieval Iceland by saying: “One might almost describe  anarcho-capitalism as the Icelandic legal system applied to a much larger and more complicated society.” (Benson also relies on the Icelandic example.) The Icelandic commonwealth had a flourishing society with remarkably little government. The Icelandic sagas or epic histories recently collected in The Sagas of Icelanders, although subject to some scholarly debate as one might expect with 1,000- year-old folklore, present a fascinating example of a virtually stateless society.

Medieval Iceland’s government had no executive, no criminal law, and no bureaucracy, and its system of chieftainships was based on markets. What we think of as criminal laws, against crimes like assault, murder, or theft, were resolved through tort-based civil law. As a result, there were few victimless crimes, and all penalties were monetary.

The key figures in this system were chieftains, called goðar (singular goði). The crucial feature of chieftainships was their market-based nature. The bundle of rights that constituted being a chieftain, called goðorð, was private property. As Friedman describes it, “if you wanted to be a chieftain, you found one who was willing to sell his goðorð and bought it from him.” Allegiance to a chieftain was purely voluntary. The followers freely contracted with the goði for services. Even more important, switching allegiance to a different goði was possible and straightforward because Icelanders were not geographically limited in their choice of chieftain.

To see how this system functioned, consider the reliance on private entities to provide protection against violence. In the absence of police and courts, how did Icelanders prevent violent members of society from harming them? Physical harm to another required payment of damages, fixed according to a schedule that provided so much for loss of an eye, so much for loss of an arm, and so much for a killing. (Friedman estimates that the price of killing someone was between 12.5 and 50 years of income for an ordinary man.) Thus, an individual who harmed another would be required to pay the victim (or his heirs) for the harm caused. This payment system prevented the wealthy from abusing the poor, a frequent complaint by critics of anarcho-capitalism. If a wealthy individual harmed a penniless person, that person would receive enough funds as compensation to allow him to purchase retribution if the victim desired. Alternatively, the victim could sell or assign his claim to a stronger rival of his attacker and thus contract out collection.

The Icelandic commonwealth eventually came to an end in 1262–1263, when Icelanders voted to ask the king of Norway to take over the country. The reasons for this development remain obscure. Friedman speculates that Norwegian meddling; increased violence, which he calculates as roughly equivalent to our highway death rate today; or increasing concentrations of wealth and power made the system vulnerable and less stable.

Social anarchists, those anarchists with communitarian leanings, are critical of anarcho-capitalism because it permits individuals to accumulate substantial power through markets and private property. Noam Chomsky, for example, argued that anarcho-capitalism “would lead to forms of tyranny and oppression that have few counterparts in human history… . The idea of ‘free contract’ between the potentate and his starving subject is a sick joke, perhaps worth some moments in an academic seminar exploring the consequences of (in my view, absurd) ideas, but nowhere else.”

For these anarchists, the key issue is the existence of power, not who wields it. By rejecting any meaningful role for market forces and private property, however, social anarchists leave unresolved the mechanism for coordinating the economic activity necessary to sustain human existence and generally retreat into evocations of the need for community.

Some libertarians reject anarcho-capitalism and argue instead for a government limited to dispute resolution and preservation of order. They object to the variance in standards of justice and procedure likely to occur when law depends on market forces—law will vary among places and persons, just as the varieties of breakfast cereals do. The problem with this argument, as Friedman has observed, is that it assumes the government is controlled by a majority that shares a taste for similar principles of law. If such a majority exists, market mechanisms also will produce a uniform set of legal services. If such a majority does not exist, however, anarcho-capitalism better serves to produce a diversity of legal services that would satisfy diverse tastes.

A further libertarian criticism of anarcho-capitalism is its failure to limit the types of law that will be produced by market forces. If almost everyone desires restrictions on some particular behavior, an anarcho-capitalist society might impose such restrictions, whereas a libertarian one will not. Some anarcho-capitalists (e.g., Murray Rothbard and his followers) have made similar criticisms of the analyses of other anarcho-capitalists (e.g., David Friedman). Andrew Rutten uses game theory to explore various problems with an anarchist society, including this one. Given the potential for abuse of power even in anarchy, these critics argue, it is not necessarily clear that anarchy will be better at protecting rights than the state. A related libertarian criticism is that an anarchist system will break down as the result of collusion between the firms providing law and order so that eventually something like a state emerges, but without constitutional limits on state power.

Further Readings

Benson, Bruce. The Enterprise of Law: Justice without the State. San Francisco: Pacific Research Institute for Public Policy, 1990.

Cowen, Tyler. “Law as a Public Good: The Economics of Anarchy.” Economics and Philosophy 8 (1992): 249–267.

Friedman, David D. The Machinery of Freedom: Guide to a Radical Capitalism. 2nd ed. LaSalle, IL: Open Court, 1989.

Kellogg, Robert, and Jane Smiley. The Sagas of Icelanders. New York: Viking Penguin, 2000.

Morriss, Andrew P. “Miners, Vigilantes & Cattlemen: Overcoming Free Rider Problems in the Private Provision of Law.” Land & Water Law Review 33 (1998): 581–696.

Rutten, Andrew. “Can Anarchy Save Us from Leviathan?” The Independent Review 3 (1999): 581–593.