A common reductio ad absurdum of libertarianism is that it implies anarchism.  Rothbard now eagerly bites this bullet.  Indeed, this chapter is the most detailed defense of anarcho-capitalism that he ever wrote.

Rothbard begins by sketching how a free market would handle “police, law, and the courts.”  In a nutshell: Police would sell subscriptions; courts would be hired by police firms to resolve their disputes; the law would emerge from judicial firms’ quest to attract customers with their wise, streamlined legal codes.

Rothbard answers many questions along the way, but he devotes the most time to…

…a final nightmare which most people who have contemplated private protection agencies consider to be decisive in rejecting such a concept. Wouldn’t the agencies always be clashing? Wouldn’t “anarchy” break out, with perpetual conflicts between police forces as one person calls in “his” police while a rival calls in “his”?

Rothbard has one answer for “honest disagrements,” and another for “outlaw protectors.” 

Honest disagreements, he says, would rarely lead to violence, because it is in businesses’ interest to hammer out peaceful ways to resolve disputes:

Every consumer, every buyer of police protection, would wish above all for protection that is efficient and quiet, with no conflicts or disturbances. Every police agency would be fully aware of this vital fact. To assume that police would continually clash and battle with each other is absurd… To put it bluntly, such wars and conflicts would be bad–very bad–for business… [A]ll conflicts of opinion would be ironed out in private courts, decided by private judges or arbitrators.

Doesn’t this just push the problem back a step?  No.  Rothbard offers the reader a complete flow chart:

Mr. Jones is robbed, his hired detective agency decides that one Brown committed the crime, and Brown refuses to concede his guilt. What then?… Jones would go to the Prudential Court Company to charge Brown with theft.

It is possible, of course, that Brown is also a client of the Prudential Court, in which case there is no problem. The Prudential’s decision covers both parties, and becomes binding…

What, however, if Brown does not recognize the Prudential Court? What if he is a client of the Metropolitan Court Company? …The case will then be heard by Metropolitan. If Metropolitan also finds Brown guilty, this too ends the controversy and Prudential will proceed against Brown with dispatch. Suppose, however, that Metropolitan finds Brown innocent of the charge. Then what? Will the two courts and their arms-wielding marshals shoot it out in the streets?

Once again, this would clearly be irrational and self-destructive behavior on the part of the courts… Thus, an essential part of any court’s service to its clients would be an appeals procedure. …The appeals judge would make his decision, and the result of this third trial would be treated as binding on the guilty…

An appeals court! But isn’t this setting up a compulsory monopoly government once again? No, because there is nothing in the system that requires any one person or court to be the court of appeal…

But suppose Brown insists on another appeals judge, and yet another? Couldn’t he escape judgment by appealing ad infinitum? … In the libertarian society, there would also have to be an agreed-upon cutoff point, and since there are only two parties to any crime or dispute–the plaintiff and the defendant–it seems most sensible for the legal code to declare that a decision arrived at by any two courts shall be binding.

OK, what about “outlaw protectors”?  Rothbard’s answer: the free market provides built-in “checks and balances” that make dishonesty and open violence hazardous to the perpetrators’ health:

What would keep the free-market judges and courts honest is the lively possibility of heading down the block or down the road to another judge or court if suspicion should descend on any particular one… These are the real, active checks and balances of the free-market economy and the free society.

The same analysis applies to the possibility of a private police force becoming outlaw, of using their coercive powers to exact tribute, set up a “protection racket” to shake down their victims, etc… [I]n contrast to present-day society, there would be immediate checks and balances available; there would be other police forces who could use their weapons to band together to put down the aggressors against their clientele. If the Metropolitan Police Force should become gangsters and exact tribute, then the rest of society could flock to the Prudential, Equitable, etc., police forces who could band together to put them down.

Rothbard ends the chapter with a brief discussion of national defense.  Even if the Soviet Union were “hell-bent on on attacking a libertarian population,” he opines that decentralized deterrence might work better than what we’ve got.  And if that falls through, we’ve always got guerilla warfare:

[T]he occupying Russians’ lives would be made even more difficult by the inevitable eruption of guerrilla warfare by the American population. It is surely a lesson of the twentieth century–a lesson first driven home by the successful American revolutionaries against the mighty British Empire–that no occupying force can long keep down a native population determined to resist.

Critical Comments
This chapter that has literally converted thousands of highly intelligent, economically informed people to anarcho-capitalism.  The first time I read it, I thought it was crazy.  By the tenth time I’d read it, Rothbard had made a believer out of me.

What’s the appeal?   In all honesty, its sheer eloquence is hard to resist.  I still get chills from passages like:

And, indeed, what is the State anyway but organized
banditry? What is taxation but theft on a gigantic, unchecked, scale?
What is war but mass murder on a scale impossible by private police
forces? What is conscription but mass enslavement? Can anyone envision
a private police force getting away with a tiny fraction of what States
get away with, and do habitually, year after year, century after

But there’s a lot more to this chapter than soaring sentences.  While Rothbard doesn’t use this term, his main intellectual achievement here is to show that anarcho-capitalism is a plausible Nash equilibrium.  If a free market in police, courts, and law were established and expected to continue, then Rothbard persuasively argues that no major actor would have a strong incentive to undermine it.  If one police firm stopped peacefully settling disputes, its costs would skyrocket and most of its customers would abandon it.  If a judge became corrupt, he’d ruin his reputation and lose most of his business.  If one firm tried to become the new government, the most likely result is that it’s employees would quietly fail to show up for work.

Alas, world history shows that there are many other equilibria, and it’s extremely difficult to explain how to move to the good equilibrium that Rothbard sketches.  If the U.S. government dissolved itself overnight, almost everyone would expect violent chaos, and this expectation would be self-fulfilling.

Also of note: Even Rothbard lacks the chutzpah to confidently claim that decentralized “national defense” would better deter a Soviet invasion than the Department of Defense.  He makes up for this chutzpah shortfall, though, with the single most ridiculous argument in the entire book:

But suppose–just suppose–that despite all these handicaps and obstacles, despite the love for their new-found freedom, despite the inherent checks and balances of the free market, suppose anyway that the State manages to reestablish itself. What then? Well, then, all that would have happened is that we would have a State once again. We would be no worse off than we are now, with our current State. And, as one libertarian philosopher has put it, “at least the world will have had a glorious holiday.” Karl Marx’s ringing promise applies far more to a libertarian society than to communism: In trying freedom, in abolishing the State, we have nothing to lose and everything to gain.

I don’t think I’ve ever seen paragraph with a greater disparity between beauty and truth.  Have you?