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On Market Protection

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April 17, 2011 – Comments (29)

I am often faced with the charge that the market can not (or would not) provide protection services. My counter is an irrefutable truth:

The market demand for protection is far greater than governments actually provide.

In order to deny this, one must also deny the myriad of market protection services available to property owners. Businesses have complex security systems, either provided in-house or through contracts with specialists. Home owners have electronic security systems that trigger incident response teams. Wealthy individuals are never satisfied with the basic government protection, hiring specialists known as bodyguards and protective services. 

The poor's protection, if you can even call it that - since the poor are routinely victimized by the government's protection monopoly and the police presence in poor communities is notoriously corrupt - is also insufficient to meet their demands. It is true that the poor seek options like gangs and organized crime to increase their security.  More importantly, poor communities have been known to take security into their own hands by forming community action groups that include patrols and round-the-clock guards plucked from the community itself. Anything beyond that, such as intervention and confrontation, is seen as a direct threat to the police monopoly.  Yet, even this limited competition can have positive effects, since it causes the usually slow moving police bureaucracy to focus its resources in your area (at the expense of others). 

This leads to another economic law:

Supply constitutes demand

This should not be confused with the famous Keynesian strawman directed against Say's Law. We are not saying that supply creates demand (nor did Jean-Baptists Say, as Keynes alleged.) On the contrary, the job of producers and entrepreneurs is to attempt to provide goods the market demands while anticipating changes in demand.

Many people (in fact, almost all people) believe in a superstition: that without a government monopoly protection racket, supply for protection services would disappear. As we have seen, demand for protection services is already higher than the monopoly service provides. So how could it possibly be that the supply of protective services in the market could decline under conditions of competition, when the job of entrepeneurs is to provides goods the market demands?  Obviously, we are dealing with an ignorance of human action.  This ignorance leads to a superstition that can be summed up as: This is the best we can do.  Plainly speaking, it's not.

This is not the whole story, but all I will share for now. In fact, we can extend this discussion to include any objection you would like in the comments.

Enjoy your weekend! (As for me, I'm enjoying the NBA Playoffs and Kevin McHale's attempt to break the record for most faked/forced laughs in broadcast history.)

David in Qatar

29 Comments – Post Your Own

#1) On April 17, 2011 at 2:44 PM, Valyooo (99.63) wrote:

It is the most frustrating thing ever to have this argument with people.  Everytime I bring this up people always say that some big guy with huge muscles would rob my house in absence of a police force.

Oh wait a second, that already happened, and the cops did nothing about it.

Cops have beat up my black friends in front of me, arrested me for holding .2 grams of a plant in my pocket, searched my car for idling my engine, pulled me over for having new york license plates, and randomly searched me.  When I needed them,when my house got robbed, they did absolutely nothing.

Its a good thing they provide so much safety!

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#2) On April 17, 2011 at 3:54 PM, ikkyu2 (99.38) wrote:

I have almost no idea what you're talking about, David.  I think you are trying to talk about a market for private police and bodyguard services, and criticizing government-run police services.  But you could also be talking about securities regulation, or equities market insurance such as provided by the SIPC, or military services.

So if you were trying to get something across to your casual readers, I'm not sure you got there. 

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#3) On April 17, 2011 at 4:11 PM, whereaminow (42.76) wrote:

Valyooo,

Obviously you've had some run ins with the less glorified aspect of law enforcement.

It's definitely a tough subject to bring up in casual discussion. It is one of the most entrenched sacred cows.

ikkyu2,

So if you were trying to get something across to your casual readers, I'm not sure you got there. 

Not to worry. It's a Sunday. Traffic on the site is so low on Sundays, I don't expect to reach them anyway. (Truth be told, 1. I wanted to put thoughts on keyboard to keep up the practice and 2. I wanted to get this thought on keyboard for future reference.)

I have almost no idea what you're talking about, David.  I think you are trying to talk about a market for private police and bodyguard services, and criticizing government-run police services.

You got it!

But you could also be talking about securities regulation, or equities market insurance such as provided by the SIPC, or military services.

I'm actually really glad you see that. In fact, that is exactly true and I was hoping someone would read into that. 

David in Qatar

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#4) On April 17, 2011 at 5:21 PM, Valyooo (99.63) wrote:

That is the one aspect I am unsure of how it would be regulated without government;  securities.

As you can see from the  china small cap nonsense, even a top 4 auditor does nothing.  How would other frauds be caught without the SEC?  I am sure you have an answer, I just dont know what it is.

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#5) On April 17, 2011 at 5:45 PM, whereaminow (42.76) wrote:

Val,

My reply is usually two fold, although if I really researched it I'm sure I could come up with a dozen more.  First, it was a private protection service that discovered Bernie Madoff's ponzi scheme.  Second, for how the stock exchanges were privately regulated before the SEC (as well as to learn the true purpose for the creation of the SEC), I always recommend Benjamin Anderson's classic Economics and the Public Welfare. He'll walk you through the whole ugly episode and as well as how the markets handled panics and disastrous events before the knuckleheads were put in charge. Private regulation of exchanges worked as we would expect it. Property rights were enforced and protected. The exchanges were more responsive to their customers. The investors took the risks seriously. Those relationships have all been distorted or completely destroyed by the SEC.

David in Qatar

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#6) On April 18, 2011 at 1:18 AM, L0RDZ (84.26) wrote:

For protection use a condom...

 

 

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#7) On April 18, 2011 at 1:53 AM, tekennedy (71.14) wrote:

I figure this to be a good place to continue our earlier debate from the other thread.  First off, I'd like to say I'm usually on your side of the arguement as a republican in Massachusetts so I'm not just regurgitating general leftist ideals and I believe a number of government run works should be privatized.  I do believe that there are benefits from having a government protection "racket."  Its worth bringing up a quote from the previous discussion as it is illistrative of the heart of the issue:

"let's just say, to play Devil's Advocate, that the government could find one thing, just one thing, that everyone wanted [...] at the one price that everyone wanted to pay, then they wouldn't have to coerce us into paying for it, would they?"

This brings up half of the major difference between a free market approach and the current market for protection services (the other half of which is brought up in this article).  In a market based mechanism everyone would have a varying level of demand because of their ability to pay and their need for protection.  In our current system there is a baseline amount of protection provided to every citizen and those with the means and need for more will purchase more.

I won't argue that there is one price everyone would pay for a specific level of service; the point I would like to make is that it's everyones right to be protected from crime whether they have the means to pay for it or not.  The right to life, liberty and pursuit of happiness would be nothing without these simple protections.  I'd also like to mention that this isn't a "monopoly."  People can and do purchase additional protections if they have additional need for protection (your everyday citizen has no need for a bodyguard). 

I'd be happy to continue this discussion in a civilized manner.  Please don't assume I'll plug my ears and not listen to opinions contrary to my own, because I actually enjoy challenging my beliefs and changing them when contrary evidence presents itself.

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#8) On April 18, 2011 at 10:42 AM, FreeMarkets (97.61) wrote:

This is one of those areas where I disagree w/David.  I believe gov'ts are formed for mutual security and that a gov't should provide security from: 1) foreign armies (a problem the U.S. doesn't really have) 2) fellow citizens 3) disease control (I really don't want someone with an infectious disease allowed to roam from one place to another).

#2 applies here.  Armed thugs were highered by large corporations to break up workers trying to form unions.  With that kind of money, only a gov't police force can be called upon to end the practice.  As Thomas Paine said "Government, even in its best state, is but a necessary evil; in its worst state, an intolerable one." 

I do agree with David that we are much further down the road of an intolerable gov't today than a necessary evil, but I do not believe in the abolition of gov't.

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#9) On April 18, 2011 at 11:45 AM, russiangambit (29.49) wrote:

> #2 applies here.  Armed thugs were highered by large corporations to break up workers trying to form unions.

There is another side of this , however, if the power of the state is left unchecked. In Russia, the armed thugs ( i.e. police aka mafia) are hired by the government to bend corporations to their will. And in return the armed thugs ( i.e. police again) have a free pass to extort money from private citizens and also abuse them in any way they feell like.

The difference between US and Russia is the rule of law. In US the police still abides by law, however grudgingly, in Russia it doesn't. It is the natural progression of all enforcement/ power structure towards the absolute power and disregard of the law because the power corrupts. Once the protection of the law is overpowered by the power structures the protectors become the abusers. We are already seeing this with TSA.

I am sure it is my personal experiences that make me somewhat irrational on the subject but I cannot stand any power structures. Not police, not military, not TSA because each one them has the power over me, has the power to abuse me without any reason or abuse others on my behlaf and I can't stand it. Whatever protection they offer in return is not enough to justify their power.

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#10) On April 18, 2011 at 11:58 AM, whereaminow (42.76) wrote:

Hey guys, sorry I missed your comments. I was away from a computer.  I'll get back to you later today.

David in Qatar

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#11) On April 18, 2011 at 12:10 PM, mtf00l (43.58) wrote:

russiangambit,

Totally agree with the TSA comments.

The rest, as you say, is on it's way to tyranny.  The question is how do "we the people" bring back a reasonable "rule of law"?  As has been stated, rephrased by me, "there is nothing common about common sense".

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#12) On April 18, 2011 at 12:53 PM, whereaminow (42.76) wrote:

tekennedy,

Thanks for the comment.

In our current system there is a baseline amount of protection provided to every citizen and those with the means and need for more will purchase more.

This is where I find my biggest disagreement. I don't view the baseline as a function of protection for the people, but rather as a protection for the coercive class (the group of people that use the State's comparative advantage in violent intervention to their advantage.)

There is another huge problem with the government protection racket. Since a certain level of government protection is "guaranteed" and at that level and for certain functions there is no allowed competition, there is no basis for the police to determine their effectiveness in meeting market demands.

It is at this point that the police begin to engage in typical bureaucratic behavior. I'll give you an example. Studies have shown repeatedly that increased vehicle patrolling brings no decrease in crime (Kansas City, 1972-73;http://en.wikipedia.org/wiki/Kansas_City_preventive_patrol_experiment). This study has been repeated several times with similar results. Often the study finds the opposite to be true (Tulsa, OK).

Yet, police bureaucracies, like all other bureaucracies, fight (and lie) to keep their power, to increase the size of their mission, etc. The end result is ever increasing police budgets that provide little of anything that people want.

With the police, it's extra disgusting, since they often paint themselves as a noble class whose lives mean more than ours (the media and political classes benefit from this view, and hence, gleefully play along), while the horrible things they do are often cast as "accidents" and "poor training" with little attention to the importance of the victim's lives. 

Worst of all, and this is true of any government agency, they can't even know when they are doing something right. Since funding for police departments is derived from coercion, rather than voluntarily through market means, it is the decision of other entrenched interests as to whether or not the police recieve increases in funding for various projects. It is not (never) the case that the police receive extra benefit because they have provided a better service to the market.

Like I said, this is the case with all bureaucracies, but when you consider the view that the police are actually there to protect the coercive class and not the public, this fact leads to the realization that the police will one day be the greatest enemy to human freedom.  

You can see in all revolutions that the first line of defense for the government is its "security apparatus."  Since all States, tyrannical or benign and democratic, have the similar characteristic that they derive their income through coercion, the police are always the last line of defense. What is true, in this regard, for Egypt and Bahrain, is also true for America.  The police will silence dissent. The repression of peaceful protests at the Republican and Democratic conventions in 2008 is a fine example. 

In the end, we are left with a paramilitary force, providing services that no one but the power elite actually wants.  All the while, they bloviate and lie about how they are defending our freedoms, but those are just words.  Americans do not lead the world in incarcerations as a percentage of population because the police are keeping us free.  The actions of the police tell the story.  They are taking our freedom piece-by-piece, as instructed by the coercive class.  

David in Qatar 

 

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#13) On April 18, 2011 at 1:04 PM, whereaminow (42.76) wrote:

FreeMarkets,

As with other libertarians on this site, I don't spend a lot of time bickering the minarchist vs. anarchist position. Like my friend catoismymotor and Ron Paul, you take the minarchist position. That's fine by me. You see the protection of liberty as the government's foremost responsibility.  If you (or Ron Paul) were to actually be successful in bringing about this type of government, I would be thrilled.  Hence, I support the position.

But philosophically, I find it untenable. The reason is because of what a State is and is not.  A State, even the best State, is a minortiy of people that hold a comparative advantage in the use of violent intervention.  They are, simply, not good people.  The State is not government, in a practical sense. Government is the administration of laws.  Those laws can come about in different ways and governance can, does, and has existed without the coercive State apparatus.

What's the difference?  Here's an example. During the  Egyptian Revolution, a senior bureaucrat in the State Department went on Al Jazeera to explain that American interests must be accounted for in any new Egyptian government. Is he a member of the American government or the American State? 

He is not concerned with the administration of laws. He is concerned with protecting the parasitic class, the State.  His livelihood and that of his fellows relies on coercion.  The livelihood of a judge does not.  People will want, and pay for, judges without a State.  All societies develop common law norms at some point, whether or not they become States.  People will not, ever, voluntarily support the coercive class, the entrenched bureaucracy that supports the State.  That is why they are so dangerous.

David in Qatar 

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#14) On April 18, 2011 at 1:05 PM, tekennedy (71.14) wrote:

@freemarkets- I'd say my perspective is fairly similar to yours. I wouldn't go as far as saying a government is a necessary evil. I'd say that any institution takes on the greater and lesser traits of the people within it.

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#15) On April 18, 2011 at 1:13 PM, whereaminow (42.76) wrote:

russiangambit,

I'm glad you see both sides of this. I am going to leave FreeMarkets comment about unions untouched for now. That will lead us into a whole 60 comment discussion that's a good separate thread.  I'll keep that in mind for future blog ideas.

There is another side of this , however, if the power of the state is left unchecked. In Russia, the armed thugs ( i.e. police aka mafia) are hired by the government to bend corporations to their will. And in return the armed thugs ( i.e. police again) have a free pass to extort money from private citizens and also abuse them in any way they feell like.

This is absolutely true! The worst part of our current predicament is that so many people have come to believe that the American State is somehow different.  Few even know it exists, or what a State is.  Most people believe that Americans voluntarily support the power elite through their taxes. Many feel that the power elite selflessly acts in their benefit.

This is clearly total nonsense and not supported by any history of mankind, past or present.

The most importance assurance of safety and liberty for any society is to be ever vigilant against those who aspire to gain power over their fellow citizens.

By contrast, in America, we are taught that the most important way to protect our freedom (they never say liberty) is to give power away to those who aspire to it, who will then give you freedom.

Nuts.

David in Qatar

 

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#16) On April 18, 2011 at 1:26 PM, tekennedy (71.14) wrote:

@russiangambit- you do hold an interesting perspective which I haven't personally experienced. Your point does a good job highlighting the need for a system to hold police accountable, which is a major difference between an effective system and a police state.

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#17) On April 18, 2011 at 1:39 PM, eldemonio (98.74) wrote:

While I agree that the market demand for protection is high, the market demand for vengeance is even higher. 

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#18) On April 18, 2011 at 1:51 PM, tekennedy (71.14) wrote:

@whereaminow- thank you for the well thought out response. I'd like to summarize your response to 2 main points(correct me if I'm wrong):

-our current system eliminates competition for baseline security

-And there are conflicts of interest within the government/police

First I'd like to say that I agree with you to a large extent on point 1. Increased competition would help reduce inefficiencies and help improve the level of service (which is why I think education should be privatized). I view this as a necessary inefficiency for protection however. If there were a free market way to guarantee every citizen a certain amount of protection I would 100% support it. Finding where to draw this line is difficult however. I recall an incident where (I believe in Arizona) the fire department refused to put out a fire in a guys house because hed forgot to pay an annual fee. In any system where all parties aren't covered there would be similar events.

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#19) On April 18, 2011 at 1:55 PM, whereaminow (42.76) wrote:

eldemonio,

While I agree that the market demand for protection is high, the market demand for vengeance is even higher.  

An interesting point, and one I could probably dedicate 20 paragraphs to, so I'll keep it brief.

While there is a private market for vengeance, there is also a State desire for vengeance. There were 2,977 killed by the 9/11 hijackers. In response, the American State's vengeance has produced hundreds of thousands of dead civilians. And America is considered a good State (even a model State by those in the American power elite.)  I don't know that on the private market the desire for vengeance equals "I want to kill John so bad that I'll wipe out his entire town."  It's possible of course (although an abhorrent idea to a libertarian.)

Also remember that vengeance has a cost. Paying for those costs and the costs to protect yourself from counter-vengeance are high. Historically, only States have been able to satisfy their even increasing demand for vengeance. States using unbacked paper money have been able to raise the bar, so to speak, which would lead us into another discussion.

David in Qatar 

 

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#20) On April 18, 2011 at 2:31 PM, tekennedy (71.14) wrote:

As for point 2 (that there are conflicts of interest within the system) I believe you need to view the system in its totality. As far as the legislature and the police their natural bias is toward staying in power. With the police force itself this is understandable as the job is their livelihood.

The legislature itself has more of a bias towards reelection. This has actually resulted in more ebbs and flows such as reductions in fire and police during recessionary conditions because of lessened budgets. Another point worth mentioning is the variations on laws themselves. There was prohibition and its repeal and the current move toward the legalization of marijuana amongst others. I would say that there should be a reduction in size of the police (and definately the military) and I believe this will partially happen naturally from budget shortfalls. In general I'd say the need for politicians to get reelected at least keeps their interests from conflicting too much from the majority opinion (within limits) and helps keep somewhat of a system of checks and balances.

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#21) On April 18, 2011 at 3:38 PM, whereaminow (42.76) wrote:

tekennedy,

Thanks for the follow up. I'll have to continue this later, however. Hopefully I can get a response up tonight. Otherwise, I'll back tomorrow.

David in Qatar

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#22) On April 18, 2011 at 4:10 PM, eldemonio (98.74) wrote:

David,

I suppose I was referring more to the fact that many people feel there is a great deal of injustice in our world.  Many people feel frustrated that there is no reliable outlet to right the world's wrongs.  At this point in the game, people don't want protection alone, they want those who have done them wrong to pay. 

 

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#23) On April 18, 2011 at 6:01 PM, rfaramir (29.57) wrote:

"The market demand for protection is far greater than governments actually provide."

Thanks for pointing this out! I've often tiptoed around arguing for privatizing defense/security services with my minarchist (or further afield, conservative) friends. I also used to think that police and national defense was a legitimate government service (as does Ayn Rand--go see Atlas Shrugged, it was good!). After reading enough Rothbard and Hoppe I was convinced, but I didn't have confidence to convince my friends.

This self-evident fact shows the real situation and helps clear away the illusion of the supposed necessity of the State.

It also is another area where intervention by the State squeezes out private solutions. Once we have all 'paid' (via taxes) for police services, they become more highly in demand than they can fulfill (underpricing causing shortage). Any time we need emergency help we think of calling the police first (or 911 generally), but why? Because we've already paid for their service, it is 'free' to us (at point of decision), it is socially acceptable (everyone expects it), and officially legitimate (as opposed to calling on our friendly neighborhood freelance ninja warriors). Because the police are already there, private solutions are discouraged. Not totally, as you rightly point out: bodyguards, security guards, Brinks, etc. But for the mass of us. Why for the mass of us? Because our funds have been confiscated for paying the police, we have less to spend on the security services we want, and since there is a 'free' level already provided, any competing service has to offer gold-level service to win customers, who will automatically be on the high end. The rest of us make do with calling the State police, who, "when seconds count, are just minutes away."

By being put into the commons, the police service suffers the tragedy of the commons. No one is directly responsible for keeping them accountable to our needs (or equivalently, everyone is), so no one keeps them accountable. Their level of service, when high, is not rewarded with more pay, nor when low, given the necessary negative feedback they would receive in the competitive free market, i.e., they don't lose customers or funding. In fact, the worse they do, the more the bureaucrats cry for more funding, not less. The same vicious cycle towards underperforming that all government goes through. 

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#24) On April 19, 2011 at 10:38 AM, FreeMarkets (97.61) wrote:

One thing I admire about David is his thoughtful responses! :-)

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#25) On April 19, 2011 at 1:32 PM, whereaminow (42.76) wrote:

tekennedy ,

If there were a free market way to guarantee every citizen a certain amount of protection I would 100% support it

But there is a guarantee!  I like to use the following example to explain my point:

During the second World War, the US government rationed food and enacted a myriad of price control to "ensure a certain amount of food for every citizen."  (That's not the real reason they did it, but that's the standard line.)

Now, imagine that this had always been the case, not just in war, but in peacetime as well (in many countries, this has and continues to be the case.) I come along and tell you that property rights and competition in the distribution and growing of food, all based on voluntary cooperation, would guarantee enough food for every American.  Do you think you would believe me? Do you think you would support the repeal of the State's food rationing?

David in Qatar

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#26) On April 19, 2011 at 1:33 PM, whereaminow (42.76) wrote:

rfarmir,

I'm glad I can return the favor! You have helped me see angles and ideas that were hidden on many occasions.

FreeMarkets,

Many thanks!  

David in Qatar

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#27) On April 19, 2011 at 1:52 PM, mtf00l (43.58) wrote:

One day David, one day...

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#28) On April 19, 2011 at 3:03 PM, tekennedy (71.14) wrote:

@whereaminow- although that is a reasonable example I'd like to say a free market system would work out somewhat different in the real world. In the hierarchy of needs you'd purchase food and water, shelter, heating etc, then security. I'd say most people would purchase security: from businesses down through the lower middle class. The money which normally would be used for taxes to go to police would instead be used for private security.

The poor and unemployed would be where the system breaks down. With a lower (or non-existant) tax rate (as of current) and a lack of disposable income a large portion of these people would be unable to pay for protection. Often these areas will defend themselves... through gangs and mobs. Another effect would be people forsaking protection when they need it most; during cyclical downturns unemployed and underemployed people may drop coverage which is a time when crime tends to go up.

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#29) On April 20, 2011 at 10:25 AM, whereaminow (42.76) wrote:

tekennedy,

Let's wrap this one up here for now, if that's ok. I'm sure we'll have a chance to start it up again in future posts.  My point in this post wasn't to prove how free markets would operate in security and retribution. That is another topic where other scholars spend a great deal of time.  My point was to disprove the idea that protection services would not possible or desired under free market conditions.

David in Qatar

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