Man, Economy, and State with Power and Market

To our comparative “welfare-economic” analysis of the free market and the State, it might be objected that when defense agencies restrain an invader from attacking someone’s property, they are benefiting the property owner at the expense of a loss of utility by the would-be invader. Since defense agencies enforce rights on the free market, does not the free market also involve a gain by some at the expense of the utility of others (even if these others are invaders)?

In answer, we may state first that the free market is a society in which all exchange voluntarily. It may most easily be conceived as a situation in which no one aggresses against person or property. In that case, it is obvious that the utility of all is maximized on the free market. Defense agencies become necessary only as a defense against invasions of that market. It is the invader, not the existence of the defense agency, that inflicts losses on his fellowmen. A defense agency existing without an invader would simply be a voluntarily established insurance against attack. The existence of a defense agency does not violate the principle of maximum utility, and it still reflects mutual benefit to all concerned. Conflict enters only with the invader. The invader, let us say, is in the process of committing an aggressive act against Smith, thereby injuring Smith for his gain. The defense agency, rushing to the aid of Smith, of course, injures the invader’s utility; but it does so only to counteract the injury to Smith. It does help to maximize the utility of the non-criminals. The principle of conflict and loss of utility was introduced, not by the existence of the defense agency, but by the existence of the invader. It is still true, therefore, that utility is maximized for all on the free market; whereas to the extent that there is invasive interference in society, it is infected with conflict and exploitation of man by man.