Discussing private defense in Chaos Theory, Robert Murphy argued that the market is capable of providing superior and cheaper defense that a State. I agree that a private defense firm would not pay $600 for a toilet seat. However, I question his argument for several reasons, two of which I will briefly discuss.
The first reason is his argument comparing a State run war to a socialist economy. Centralized State commanders must allocate resources to war materiel “largely through arbitrary guesswork. … The wartime goal of expelling the enemy is no different from the peacetime problem of food production” (48.) That seems a fundamental misunderstanding of large scale warfare: neither in war nor in battle is there a price equivalent that properly allocates resources solely by individuals acting to maximize their own local gain by exchange. In battle, only a central command can properly divert resources to hot spots, as it alone has the possibility of overall knowledge with minimal transaction costs. In a war, steel is allocated to planes, tanks, and so forth by strategic assessment: losing is the opportunity cost of the wrong resources, regardless of their cost. Because war incurs losses and not profit opportunities, it does not work like price incentives (soldiers’ personal gains in promotions do not allocate resources.)
The second reason is that his argument seems highly reductionistic of the dynamic of social identity and values in war. It is here, confronted with life and death, that his premise of rational self-interested actors seems most at odds with anthropological reality. People are willing to die to protect their homeland and those they love, or for deeply embedded cultural myths (in the defining story sense) such as freedom, or the triumph of the Fatherland, or to purge infidels from holy ground. Mercenaries with no personal investment may be willing to fight at a high price, but survival is their chief interest: death annuls all benefit. I know Marines for whom their own death was a cost they were willing to pay for their country and loved ones; a mercenary without such an incentive may not fight to the death in the same desperate way as one protecting a loved one or an ideal. When utilitarian self-interest dominates, breaking contract and surviving may be a lesser risk than fighting a greater force; the loser will not be in a position to sue. One will rarely transcend oneself for a contract alone.
Murphy, Robert. (2002.) Chaos Theory. New York: RJC Communications.
* This is adapted from a series of one page papers I wrote for an independent study in micro- and macroeconomics; the material included the excellent text The Economic Way of Thinking by Heyne, Boettke, and Prychitko, as well as several texts I brought in from communitarian, market anarchy, and experimental economic perspectives.