Too few Americans, even among the liberty-loving, exhibit sufficient understanding of America’s smaller-government past to articulate a realistic smaller-government future. Many libertarians can parse doctrinal differences between Hayek, Mises, Rand, and Rothbard, but few can accurately describe how American society functioned before the rise of the paternal state during the New Deal. That needs to change, if America is ever to regain its original, limited-but-efficient system of governance.

Liberty is perhaps best positioned in money matters. Scholars like George Selgin and Larry White have explained how commodity monetary systems like the classical gold standard, and competitive markets in media of exchange, worked in the past. They understand the benefits and pitfalls well enough to step in with policies and products, should the current fiat system collapse.

Some scholarly articles and books about private governance have emerged, but so far the literature barely scratches the surface of the historical lessons available to us. Although Milton Friedman and many others pointed to how it might be possible for markets or private clubs to supplant government in various instances, the discussions tended to be theoretical rather than grounded in verified, empirical examples from other places or times. 

Consider, for example, the lengthy debate over the extent to which lighthouses are public goods, in the economic sense of being non-rivalrous and non-excludable. Thanks to research by bona fide economic historians like Vincent Geloso, we now know that purely private lighthouses existed. They were eventually crowded out by governments, the monopolies of which were later justified on the historically ignorant premise that lighthouses are pure public goods and hence a service that only governments can provide.

The extent to which historical ignorance rules liberty discourse is again on display in Andrew Koppleman’s new book, Burning Down the House: How Libertarian Philosophy Was Corrupted by Delusion and Greed. The book’s main title, Koppleman recently explained, is both a metaphor for libertarian thought and an actual 2010 event that he describes as follows:

“So, Obion County, Tennessee did not have its own fire department. It contracted with a nearby town for fire protection, but it didn’t do the contracting. Each individual citizen made a private contract with the fire company for protection, and there was an old man named Gene Cranick who had been paying his fee for years and he’s getting old. One year, he forgot and his house caught fire. His wife called the fire department, and the fire department told him, “Sorry, you didn’t pay your fee. We can’t help you.” Eventually, they came down in order to make sure that the fire didn’t spread to his neighbor’s houses because his neighbors had paid the fee and his house burned down.

This generated a furious debate in the press afterward about whether this was appropriate behavior and there were folks on the right and the left who agreed that this was the true face of libertarianism. This was the vision of the future that libertarianism was offering.” 

Like the debate over lighthouses, the discussion of the Cranick fire shows a shocking ignorance of how private fire protection actually functioned in America in the eighteenth and nineteenth centuries. The point of failure in the Cranick fire was the government fire department’s lack of incentive to remind him to pay his annual $75 fee, something a for-profit fire company would not have allowed to occur, not out of any regard for Cranick, of course, but out of its own self-interest.

But the culprit in the broader story is the overregulation of property insurance. Before the rise of Big Regulation, insurers minimized fire damage by owning or contracting with private fire fighting companies, and by offering premium rebates to building owners who implemented safety precautions scientifically developed by a consortium of insurers. 

Interestingly, Cranick’s insurance policy contained a clause that allowed his insurer to reduce its payout in the event that he did not pay his fire department fee. Perhaps the insurer thought that threat was sufficient incentive to induce insureds to mark the darn due date down, but a news article indicated that it did not invoke the clause when settling Cranick’s claim. Either Cranick’s insurer wasn’t very astute or, more likely, some insurance regulation or regulator made it too costly for the insurer to ask insureds for proof that they are up-to-date on their fire department fees. Mortgage lenders routinely require their borrowers to prove that they have sufficient insurance, but they face a less cumbersome regulatory environment than insurers do. 

Regulations also likely made it too costly for insurers to lobby Cranick’s county to contract with the fire department on behalf of its residents and simply add the $75 fee to everyone’s tax bill, or for insurers themselves to pay the fee and add it to policyholder premiums. In any event, the Cranick cluster was in no way a libertarian “vision of the future.”

Other examples of the possible private provision of presumed public goods abound in areas like civil courts (private arbitration), education (home or pod schooling), income redistribution (charities), job training (apprenticeships), military defense (privateers and private militia), policing (private security services), regulation (self-regulating organizations), the “social” safety net (disability, life, unemployment insurance, annuities), and transportation infrastructure (privately owned toll bridges, docks, lighthouses, roads, tunnels, and wharfs). 

When confronted with issues regarding the necessary extent of the state, liberty-lovers need not rely solely on economic theory, nor hypotheticals, because the historical record often can light the proper path towards smaller, more-efficient government.

By Robert E. Wright

Source: aier.org

Robert E. Wright is a Senior Research Fellow at the American Institute for Economic Research. He is the (co)author or (co)editor of over two dozen major books, book series, and edited collections, including AIER’s The Best of Thomas Paine (2021) and Financial Exclusion (2019). He has also (co)authored numerous articles for important journals, including the American Economic ReviewBusiness History ReviewIndependent ReviewJournal of Private EnterpriseReview of Finance, and Southern Economic Review. Robert has taught business, economics, and policy courses at Augustana University, NYU’s Stern School of Business, Temple University, the University of Virginia, and elsewhere since taking his Ph.D. in History from SUNY Buffalo in 1997. 

Selected Publications