Jan 4, 2018

Violence Markets, Redux, Part I

Scars of a whipped slave (April 2, 1863, Baton...
Scars of a whipped slave (April 2, 1863, Baton Rouge, Louisiana, USA. Original caption: "Overseer Artayou Carrier whipped me. I was two months in bed sore from the whipping. My master come after I was whipped; he discharged the overseer. The very words of poor Peter, taken as he sat for his picture." (Photo credit: Wikipedia)

Violence does not create wealth, but much wealth (indeed I will argue nearly all wealth) is acquired through violence.

Of course, violence has been used to assist the theft of wealth from its creators or current holders; and to enslave otherwise free individuals so that the wealth that they create can be taken from them as they produce it; and prevent slaves from escaping so they can be bred as a stock of wealth separate from the flow of wealth from their labor. 

But violence has also been used to exclude others from fertile lands, hunting territories, and mineral resources so that this natural wealth can be acquired only by those who violently exclude others. This violence-based technique is the source of most historical wealth and remains a potent source of wealth acquisition today.

In subsistence societies, only the violence that is used to lay claim to resources can be profitable. But as societies become more wealthy and productive, new cost-effective forms of violence emerge. Violence in support of theft is unprofitable when there's nothing worth stealing. But once a surplus is accumulated the value of theft can exceed the costs of stealing it, and theft becomes a profitable activity. 

Violence for slavery is unprofitable until a slave can be made to produce more than it consumes. But slavery has marginal economic return until a slave's productivity not only exceeds the ongoing costs of "supervising" the slave and maintaining the slave's servitude but also is enough to pay the cost of purchasing or otherwise gaining ownership of a slave. 

As societies become wealthier and more productive, new violence-enabled means of wealth-acquisiton become profitable. Chattel slavery is still profitable in some market segments, like the delivery of sex services. And in places where chattel slavery is not profitable, wage slavery, facilitated by violence or threat of violence, and yields generous returns. 

Individuals and groups have different abilities and willingness to create and use violence, so some specialize in violence, while others specialize in trading the goods and services they create or that they have appropriated for violence services from specialists. The services can be used to acquire additional wealth from others, to keep the wealth that one has acquired, or to violently prevent others from using productive resources. Violence is fungible, so violence providers are willing to provide violence, on demand, and at a price, for many purposes.

Over time, violence markets develop. In a violence market, violence providers compete with one another to serve the needs of violence consumers. Violence consumers incorporate violence, or the credible threat of violence, in a variety of wealth acquisition and wealth protection strategies. As a result, the market produces a wide range of violence services priced and tailored to meet market needs.

The violence industry was originally free, open and entrepreneurial. Anyone could deliver violence. But over time, like any industry, the violence industry consolidated. In each geographic region a dominant, violence provider arose and used economies of scale to drive out competitors. These were not always unpopular moves. A market might prefer a single well managed, lower cost, more effective and reliable violence supplier, to its less capable competitors. Dominant violence suppliers might merge with some competitors and take others over. The dominant violence supplier in a large geographic region came to be called the "central government" or "national government."

Such violence suppliers decentralize some of their operations to better respond to local market conditions. They grant geographic franchises to local violence suppliers (state and regional governments). Importantly, these franchises are made to conform to quality standards (laws and regulations) set and enforced by the franchiser--under threat that it will use its superior violence delivery capability to ensure conformance. National and local violence providers work to eliminate free-market violence but are never entirely successful; instead, they engage in informal collaboration to control their market and drive small entrepreneurial violence providers--like the Mafia in the United States--to the margins of the market. 

Nation-level violence monopolists maintain market control by preventing external violence providers from entering their market (national defense) and by following one of two strategies to deal with competition within their market. 

They can invest in their own violence delivery resources to can make an internal rival's violence delivery services both an inferior choice and also unprofitable. Or they can lower the cost and improve the consistency and quality of the violence that they deliver, thus creating a market barrier to entry for alternative suppliers. They can also use marketing techniques to raise the perceived quality of their violence, branding what they do as "law enforcement" to distinguish it from other forms of violence.

Violence is a valuable service. The value of violence gives rise to a competitive violence market regulated by provider practices and consumer preferences. Governments are not anti-market. Rather, they are market solutions to problems in the violence market.

Adapted and updated based on insights from reading Matt Breunig. Original post here
Part 2 here.