Equilibrium of Fear

Equilibrium of Fear
Profile photo of Predrag Rajsic

Stateless market society—a peaceful social arrangement based on voluntary relations among individuals in which the state is not present—is not a popular idea. Many people believe that this society would lack the capacity to define and enforce property rights, and that this would result in chaos, tyranny of the rich or in a reversal to a State. This belief has lead to a widespread dismissal of the stateless society paradigm.

Murray Rothbard is by many considered the champion of the stateless society doctrine. However, even Rothbard conceded that “there can be no absolute guarantee that a purely market society would not fall prey to organized criminality.”[ref]Man, Economy, and State, p. 1055.[/ref]

While it is true that absolute guarantees for any social outcome are generally inappropriate, this article indicates that there are good reasons to believe that outcomes like chaos, tyranny of the rich, or even “organized criminality” in the absence of the State are unlikely.

To show this, I will assess the core economic forces that govern the development of any society and ultimately hold it together. This will show how the internal economic features of a stateless society provide incentives for non-violence and cooperation and disincentives for violence, theft and extortion. This analytical journey will also lead us to the realization that the glue that keeps State societies together in their current form may be nothing other than fear of an imagined enemy. As far as humans can overcome this fear, they can open the path to a stateless society.

Neither Chaos nor Tyranny

The typical story one can hear when the necessity of the State is questioned is that, in the absence of the State, we would allegedly all turn against each other and start taking each other’s resources, and, since there would be no State to “regulate” this taking, chaos would ensue. Everyone would, allegedly, become a taker. This outcome, however, is unlikely for at least two reasons.

First, like any other economic activity, taking from others requires the use of scarce resources. Resources can be obtained by discovery, production, exchange, gift, or by taking from others by force. Those who want to take from others first need to acquire resources that they would use in the subsequent process of taking. This means that the initial resources for taking from others would have to be obtained by something other than taking – discovery, production, exchange, or gift.

Thus, a situation in which everyone only takes from others cannot be the initial stage of any society. Someone needs first to find or produce goods to be taken away from him or her. Any society in which the only thing people do is continual taking from others is logically impossible. Instead, a society in which some people take while other people produce would be something we would expect to see in reality. It is also not excluded that the same people produce and take from others at different times.[ref]Some would even argue that we are all takers and producers at the same time because, thank to the existence of the State, we extort money from others through taxation but we also pay taxes. In a State society, we can indeed be producers and takers at the same time because taking is performed indirectly through the State and State force is used to prevent individuals from using their own physical force against this sort of taking (taxation).[/ref]

The second reason why we would not all turn into takers is that unspecialized individuals are less productive than those that specialize in some activities or only in one activity. The law of comparative advantage or the law of association compels people to specialize in some activities while obtaining most products and services from other specialized individuals. This way everyone gets to enjoy more goods and services compared to being self-sufficient. This is why, in a stateless society, like in any other society, different people would specialize in different activities. One of those activities would be taking from others.

However, the taking activity would not be as attractive as it may seem at first glance. First, in a capital-poor stateless society it would be quite hard to become an effective taker because of the initial resource requirement needed to start a successful taking operation. If one starts taking from others at a stage when he only acquired a low level of initial wealth (say, a cave and a stick), this taker will not be able to effectively defend himself from those whose resources he took. Thus, the process of taking is preceded by a process of capital accumulation.

How about then the absence of the State in a capital-rich society such as the one in which we live? Some argue that if the State were to be abolished, the rich would use their ample resources to force the poor into submission. This would allegedly turn the present system into a system of forced labor with minimal compensation. The business owners would presumably provide the workers only with enough resources to secure food, shelter and clothing.

However, it is not at all clear why business owners would want to enslave their employees and customers. In fact, it was the opposite that humans learned over the course of history—that freedom benefits all in the long run because voluntary cooperation is more productive than forced labor. Force stifles motivation and creativity, which are necessary for the discovery of new and more productive activities. This is why freer societies tend to outperform in the long run those with less freedom, economically as well as militarily. It is the increase in the productivity of labor gained through capital accumulation and voluntary cooperation that compelled people to abolish slavery.

However, one might pose an alternative question: what if the overwhelming number of the “poor” revolts and rushes to take the property of the “rich”?[ref]One might argue that this is what happened in October of 1917 in Russia and later throughout Eastern Europe and some other parts of the world. However, in all these cases the State or a state-like command structure was present before, during, and after the revolution. Thus, these cases are not appropriate analogies for examining the consequences of a stateless period.[/ref] One possible outcome, as many have argued before, and as communist revolutions of the 20th century have demonstrated, is continuation of a State society. Another possible outcome is what I will call a stateless equilibrium.[ref]Note that equilibrium here is a metaphor for the formation of social structures and relationships (i.e., specialized industries, markets, voluntary exchanges) rather than a steady, motionless state of the world. In this equilibrium, there are always some changes in time- and place- specific circumstances, but within the general framework of the existing social structures.[/ref] As the following two sections will show, while there are strong incentives for voluntary cooperation in such equilibrium, these incentives can be clouded by the oldest of emotions—fear.

A Stateless Equilibrium

There is always only a limited amount of resources to be taken from the rich. So, in the beginning of the “poor’s” revolution there might be a wild fight over who is going to take what. The wilder the fight the sooner will some or most of those fighting run out of resources for fighting and for sustaining their own life.

At this point, some of them need to resort to production in order to sustain their own livelihood. Others, who haven’t run out of resources, may try to take resources from those who have turned to production. In this case, the producers would have to use two-fold effort—produce and fight to protect what they have produced. More successful producers will survive and less successful won’t. Similarly, only the most successful takers would survive. These takers may organize into gangs to become more effective in taking. The producers may also organize to better defend their goods.

Some of those that specialized in violence and taking would eventually realize that they can obtain more resources by protecting the producers from other takers in exchange for money or goods and services. This is what the law of comparative advantage or the law of association implies. Specialized fighters are more effective in fighting than people who are both producers and fighters. Specialized producers are more effective in producing than the producers who have to devote some of their time to fighting. Thus, a fighter can obtain more resources through voluntary exchange with a specialized producer than by taking from a producer who is also a fighter. Likewise, specialized producers, even after paying for the protection services, are able to consume more compared to the situation when they have to devote a portion of their time and resources to fighting the takers.

The objection that is often raised is that these protectors would turn against the producers and use force to extort goods and services. True, those less far-sighted might resort to extortion. But, the wiser ones would realize that violence or a threat of violence would weaken the productive capacity of the producers and consequently their ability to provide resources necessary for the defense against the takers while strengthening the producers’ incentives to seek services of other potential protectors.  Thus, those protectors that engage in voluntary transactions with the producers are in a better position to fend off aggression.

In the end, some people specialize in taking, while others specialize in either producing or protecting the producers against the takers. Since takers rely only on taking for acquiring resources, they do not directly enjoy the benefits of entrepreneurial discovery. Entrepreneurial discovery is a feature of the producers and those who engage in voluntary exchanges with them. The takers are always the secondary users of the producers’ creative work. They are always the second movers.

The fact that the takers do not engage in productive activity or in voluntary cooperation with producers renders the size and scope of the takers’ organizations quite narrow. The fact that the protectors and producers are in a voluntary relationship enables the protectors to gain better access to an abundant supply of goods and services.

This implies that the takers, despite the productivity benefits of a voluntary exchange relationship with producers, still prefer a violent relationship. Takers are thus individuals with a preference for violence.

One might ask why the producers don’t hire their protectors to completely exterminate the takers. The answer, again, lies in the scarcity of resources. A complete extermination of takers would require the use of resources that could instead be used in the production of other goods and services. If the amount of resources needed to completely exterminate the takers is exceedingly high, this might not be the wisest thing to do. In fact, this may be quite a risky endeavor because it may weaken the productive capacity of the producers before they exterminate the takers. This would give an opportunity to the takers to inflict more damage on the producers. Thus, there would remain some individuals who are skillful enough in taking so that the producers find it preferable just to do their best in protecting themselves from those individuals.

What about conflict resolution among producers? It would be naïve to believe that all the producers would always agree on who owns what and what the limits of that ownership are. Thus, we should expect that some producers would sometimes come into conflict over the appropriate use of resources (including the use of resources for paying the protectors). How would this conflict be resolved without the State?

First, we know that, as anything else, being in a conflict with someone, even a nonviolent conflict, is not costless. As conflict diverts time and effort, it reduces the productive powers of the producers involved in it, so each of them would prefer some sort of conflict resolution over being constantly in conflict. It is unlikely that either of the producers would resort to violence (which may include hiring a protector to initiate violence) because the short-run gains from such a resolution would have to be weighed against the long-run implications of being labeled as unreliable and violent among the fellow producers. And, the hired protector must evaluate the benefits against the costs of being labeled as a thug among the producers. This does not mean that some unwise individuals would not resort to violence. It simply means that, for producers and protectors, violence against other producers is generally less advantageous than cooperation.

This suggests that, despite being in a disagreement over the use of a resource at one time or another, the parties involved in a conflict would still be in agreement that nonviolent conflict resolution is better than a violent one or an indefinitely prolonged conflict. The actual conflict resolution technique that these parties might choose depends on their preferences. They may negotiate directly or they may agree on a mediator who would, based on the arguments presented by each side, judge as to how the conflict should be resolved. Ultimately, the conflict resolution technique depends on the preferences of the parties involved.  And, the proposed conflict-resolving course of action is generally binding not because it is backed by a threat of State violence (i.e., imprisonment), but because not complying implies a prospect of a prolonged conflict (and all the costs involved with it).

This, again, does not mean that every proposed solution to a conflict will be accepted by all involved parties. It simply means that, after some time of being in a conflict, all parties would reach a point when a resolution is better than prolonging the conflict. And, since being in a conflict requires the use of resources without a clear future benefit, producers will generally seek to avoid prolonged conflicts. Those that don’t avoid conflicts will be shunned and avoided, and may even be perceived as takers, in which case they would not be able to cooperate with those that perceive them in that way.

Equilibrium of Fear

It is only when a large number of producers start believing that they could use the force of their protectors to take resources from other producers that a large scale, organized, violent conflict may arise. But, why would producers want to do such a thing when they can, in the long run, benefit more by engaging in voluntary exchanges with other producers and protectors?

Let us, at this point, introduce an old instinct—fear.[ref]While a detailed description of the origin of this fear is outside the scope of this article, some authors hypothesize it as a biological evolutionary adaptation that was useful during the tens and hundreds of thousands of years when humans lived in small pack-like groups. Hayek and others argue that during this long period, potential benefits from cooperation through the division of labor were limited by the primitive capital structure. This kept human packs and, later, tribes small. In contrast, the benefits from occasional violent acquisition of resources from other packs and tribes were greater than the foregone benefits from merging two or more tribes through the division of labor and peaceful cooperation. Applied in the Hayekian context of social evolution, the resulting animosity toward other tribes was a useful tradition as a defence strategy. Fear of other groups as an evolutionary adaptation that was useful during the larger part of human history is no longer necessary. However, while our social evolution outpaced our biological evolution in the sense that abandoning the tradition of animosity leads to more successful societies, the instinctive fear of others remained.[/ref] Producers may fear potential aggression by other groups of producers. This fear may propel producers to support the aggression of their protectors on others while believing this aggression is the only means of preventing a future aggression by others. This fear would also motivate the producers to abandon the idea of seeking services of other groups of protectors. After all, who wants services of those who seem eager to aggress on you?

In this situation, the protectors could simply take as much from the producers as they think is “optimal” or “fair”. The producers would not object to this fearing that the protectors may not be able or willing to protect them from potential “aggressors”. The producers may also fear that the protectors would use force to extort goods and services from them if they refuse to pay their “fair” share. Thus, there are strong incentives for the protectors to create and maintain a situation in which the producers are fearful of other producers and, potentially, of their own protectors.

But, if only some protectors manage to make their partner producers fearful of others, this would still not lead to the elimination of voluntary relationships among all producers and all protectors. Those producers that are free of fear are, in the long run, more productive and thus better able to protect themselves. Those in fear are more likely to realize that their fear is baseless and counterproductive if they see there are other, more prosperous and better protected non-aggressing groups of producers.

Thus, the scenario in which there is a globally present relationship between protectors and producers based on the producers’ fear of other producers can only exist if the origin of this fear is not fully grasped by most of the producers, if the fear exists in a latent, unarticulated and unidentified form.

If we now replace the word protectors with the word states, the word producers with taxpayers, and the word taking with taxing, we get something that looks much like the world in which we live. The protectors that maintain the latent fear of foreign or internal aggression are nation-states with their military and police forces that acquire resources by taxing the taxpayers, while the taxpayers[ref]Note that even though state employees pay “taxes”, their wages come from tax revenues, not voluntary exchanges with producers. Thus, state employees are tax receivers rather than tax payers.[/ref] are all those within these nation-states earning their resources through productive activities and voluntary exchanges with others.

If you ask any of the sides currently in war, you will generally hear the same story. People on each side deeply believe that they are waging a defensive war. Even when initiating a war, this initiation is justified by claiming this was the only way to prevent a future aggression by the other side.  When it comes to aggression within countries, most people would assert that State police is the only practically feasible deterrent against individual and gang aggression.

The element that holds this equilibrium in place is the producers’ latent fear that (1) some other producers (with the help of their protectors—State armies and police forces) or (2) groups of specialized gangs of takers would take away their resources by force.

However, if it is true that, in the first case, potential aggression is fueled by the producers’ fear and not by the desire for others’ resources (because a producer can always benefit more in the long run through voluntary exchange with others), and, in the second case, that gangs of takers can effectively be deterred by contracting protectors (i.e., private security services), one has to conclude that this fear is one of those common beliefs that, on the surface seem so obviously justified, but that are, in fact, false.


Despite the common belief that a stateless society is a utopia, there are good reasons to believe that this society is not only economically feasible, but also provides continuous incentives for non-violence. This implies that the perceived impossibility of a stateless society stems from faulty economic reasoning. Moreover, the perceived inevitability of a state society seems to be based on our long learned habit of being afraid of others without a full grasp of the origin of this fear.

  • Serge

    Jerry, you currently have no arguments to disagree.

    If you are referring to "attributes"… It's not always "what looks like dog is a dog"… In the dark forest it very well could be a "wolf".

    I am not familiar with "Marixian Ring". I wonder what other methods are known to human kind to quantify intelligence. However it is totally different topic.

    I have heard of socialists proposition that everyone has same or similar intelligence, just in different field or application…In the scope of this post, I suggest that response to fear is measured by one's intelligence and since we all have different intelligence, even from "socialist" point of view, the response to fear will be different all the time and the ways to eliminate it will not always be the same.

  • predrag rajsic

    Thank you for your evaluation and for your input, Serge. I am looking forward to your future comments.

  • Jerry

    Serge: "If you really want to have a deep dive into your theory you may want to study "black market", where as people doing it already live in stateless society, but unfortunately it is not ideal as per set example above. They have gangs, leaders, rules, weapons, assassins and every other attribute of a state even voting rights."

    I don't agree "Black Market is a stateless society". You admit that it isn't in the next sentence of your post. Nor do I agree with your position on IQ. Has a Marixian ring to it. IQ is a rather crude method of measuring intellignece IMO.

  • Serge

    Predrag, I feel you have put a lot of effort and thought into your work and it is very well written. You may want to think about fear from different perspective. People do not fear each other, neither producers who produce using brain nor producers using hands to produce. People are dreamers in general. Each person sets up the target or goal either short term or long term even on subconscious level. People fear the feeling of being unhappy when their plans are disrupted while trying to achieve that goal. Whenever such disruption happens people feel unhappy. I want to present an example of fear within the most feared class in the societies as they are not protected by state – drug dealers (or any other black market). This will touch the issue of guns and shootings, however it is directly connected to your theory. And what specifically interesting to your work, drug dealers already live in stateless society.

    The Drug dealer sets up a target to make $100,000 within 1 year. He has starting capital of $1,000. He has to make about 10 sales a year considering 100% ROI from each sale minus operating expenses and some rainy day stash cash. Let say he got robbed on sales #5 for almost all his money and all he has left with is $5,000 in stash. Since there is no state to protect him, he goes and purchases gun, as the only way he sees to retrieve his product of trade or to make the robber share his pain. His plans are ruined by the robber and he is now "unhappy". By doing nothing he has to start from scratch again. He decided to go by the path of quick fix. He finds the people who robbed him and shoots them. At this point retrieving the product or money is secondary, primary is to share the pain with someone who ruined his dream and made him "unhappy". If he belongs to a gang and other party belong to another gang, the violence will start from that point on in a chain reaction. The "gun" path is a simplest way and might be the only way for 80-100-115s IQers. If the drug dealer belong to higher IQ group, he can possibly start from scratch again and at the same time develop multichain sophisticated scheme to retrieve his product without violence and at the same time ruins "robbers" plans and goals making double-double. If the gun path worked, he may get converted to a robber, realizing faster way to achieve his goal. On this path, at the end of the day his reputation will be known to "all" and he possibly would not be able to rob anyone else and should go back to the trade as per your theory. The robbing is based on trust, where is trust is the basis for stateless society.

    Going back to the point of the decision of either purchasing a gun or do nothing. If our drug dealer decided to do nothing and start from scratch, he most likely to eliminate the fear of being unhappy again due to plan disruption, will still purchase a gun in advance to mitigate the risk of being robbed and will deal only with well known people to mitigate the risk.

    If you really want to have a deep dive into your theory you may want to study "black market", where as people doing it already live in stateless society, but unfortunately it is not ideal as per set example above. They have gangs, leaders, rules, weapons, assassins and every other attribute of a state even voting rights.

    P.S. I was amazed how clueless people are while listening to talk show radio programs when Danzig Street shooting happens. Their perspective was from a law abiding "staters" trying to give suggestions how to deal with "stateless society" by the force of the state.

    And as you know, "State" is constantly fighting "Stateless" societies with War on Drugs, War on Guns and now War on Bullies and War on Rich. Interestingly enough, kids do not have clue about "state" and Bullying is just a form of such expression. State quickly moves in to suppress any attempts to develop anything in kids minds other than "state" as being supreme power and protector. At the end, the society will develop fear of "state" and when state will make them "unhappy" they may demolish it, just to create another form of it.

  • predrag rajsic

    Thanks for your elaboration, Serge. The IQ issue is interesting, but I am not sure if I agree with your interpretation of this measure or with your quantitative breakdown of productivity classes or with the interpretation of worker preferences toward their jobs. These are empirical issues and can not be settled here anyway. However, I welcome any attempts to flesh out these ideas further. Here are some of my thoughts on the IQ and its relevance for economics and ethics:

    With respect to the assumptions, there are two models, and the assumptions differ between these two models. In one model I assume that producers are not afraid of other producers. This is the stateless society. In the other model I assume that producers are afraid of other producers. This is the state society.

    If I understand your argument correctly, you are suggesting that some low productivity producers would prefer using force to redistribute the wealth of high productivity producers. In other words, in a stateless society, some of these low productivity producers would prefer to be takers, and some of those "150+" would become their leaders. Then, we can take it from there and plug it back into my model.

  • Serge

    Envy and greed…while both derive from fear are both product of differences as humans we have when we are born. This derivative is simple. In both cases humans have fear of being unnoticed, unable to support family or other dependents, being not recognized, being not what their parents wanted them to be, etc. Fear is negative feeling and humans do anything they can to eliminate it.

    The way people deal with fear is based on their intelligence or IQ. Some may drink alcohol, some will fight, some will steal, some will work harder, some will do something unexpected while seeing chain of events which will eventually eliminate the fear. Intelligence is based on how many ways out one can find, the more the better.

    There is a simple IQ divide between people, which is not recognized in the society as society does not want to deal with it, nor it is politically correct to publish such divide, so we do not offend other people:

    80-100: Majority of low salary earners, permantently unemployed, union members, "their job" haters, "finally it's Friday" sayers, etc
    100-115: Majority of low level management, some IT, skilled labour, teachers, social workers, government employees
    115-130: Actors, mid to high level management, doctors, lawyers, majority of IT, entrepreneurs, niche skilled labour, presidents, members of parlament, university professors, teachers, etc
    130-150: Sames as above, plus brilliant scientists, successful investors, black cardinals, good artists, etc
    150-180: Can reside in any previous categories, plus brilliant artists, creators and visionaries. Usually are philanthropist at certain stage of life. Not very much interested in money or power and see money or power as a tool to help others.

    Basically what you are saying that all those people can live together peacefully and produce and prosper. Unless IQ divide is recognized within societies and widely accepted, there will be no stateless society. That might be a very long way to go and possibly will never happen. This way 130's will held power, while 80-100 will be always envy and there is always will be some 150+ who will decide to help 80-99 to revolt against 130s.

    Lets imagine stateless Utopian society, where children are being IQ categorized at early stage and their ceiling is already set for them. Kind of inhumane. All hopes are lost. Nice futuristic movie plot though. Now I hold rights to it :)

    At the end of the day, what I am trying to say: People are different. You model is based on assumption that people think exactly as you do.

  • Serge

    You have described how humans evolved during medieval times. However human psychology is missing: envy and greed. In addition you are missing main concept of skilled labor vs. intelligence. Intelligent (rich) had created, government, army, police, laws, shows, etc to control the masses. Control is needed to protect the money from the mob.

    • predrag rajsic

      Serge, this analysis is not limited to any particular time or place, although it does apply some general principles to historical phenomena to illustrate these general principles. If I understand your argument correctly, the State is necessary to protect the "rich" from the envy and the greed of the "masses". This is an interesting hypothesis, and it would be great if you could elaborate on this.

      If you go back to the last paragraph in the second section ("what if the overwhelming number of the “poor” revolts and rushes to take the property of the “rich”?"), you will see that I examined the situation in which there was no State to protect the "rich". Now, you can certainly assume that the motivating forces of the "poor" are envy and greed. I have no problem with that. I simply assumed that, for whatever reason, the "poor" (you can call them "masses") want to use violence to acquire wealth.

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