The Basics of Economic Government

by Stephen H. Foerster


Imagine a totally free society, one where you were free to do anything you wished as long as you didn't use force or fraud against another person. Imagine that you never had to pay taxes, that bureaucrats didn't tell you what medicine you could use or whether you could buy beer on Sunday, or with whom you could have intimate relations. What would such a society be like? What organizations would arise to take the place of those functions of the state which are useful? Rather than the police states of despots and dictators or the ennui of today's socialist democracies, could a nation arise governed solely by a system of voluntary means?

I am dedicated to the idea that such a system would be desirable and can be developed and implemented. If government defines the institutions that organize society, and we eschew the political machinations of the state for the organization and direction of that government, we are left with the marketplace as the means by which government is created and maintained. Author Robert L. Klassen calls this type of free society economic government. He takes precedence from Albert Jay Nock in coining the term, for Nock was a pioneer in making the distinction between the "state" and "government" and saw "political" and "economic" as the opposite ends of the spectrum of coercion.

On What is Economic Government Based?

Economic government has the same questions to answer that today's political governments, or states, do. How can the nation be defended from invasion or insurrection? How can laws be justly enacted and enforced? How can the needs of those who cannot help themselves be met? How can public goods be financed? How can contracts be enforced and the initiation of force and fraud thwarted?

I envision a set of institutions to replace those of the state that through voluntary means could answer these questions as least as well as political government -- a low hurdle indeed! These institutions are founded in part on the idea of property as defined by free-market lecturer Andrew J. Galambos (emphasis in original):


PROPERTY is the basis of ownership because to own means to have and hold PROPERTY. From the definition of PROPERTY, it follows that man must first own his life before he can own anything else. Life itself is defined as primordial PROPERTY. No one may own any man but himself. Thus, PROPERTY excludes slavery at the outset.

The first derivatives of man's life are his thoughts and ideas. Thoughts and ideas are defined as primary PROPERTY and, through this ownership, intellectual freedom arises and inspires knowledge and production. From primary PROPERTY (ideas), stem action. Ownership of one's own actions (clearly a PROPERTY right) is commonly called liberty. Liberty, then, as well as life itself, is a PROPERTY right. Since all so-called human rights depend on man's liberty, it follows that ALL HUMAN RIGHTS ARE PROPERTY RIGHTS. There can be no conflict!

Ideas and actions produce further, or secondary, derivatives. These include the access to and use of land and the production, utilization, enjoyment, and disposal of material, tangible goods of all kinds from ash trays to television sets, from log cabins to skyscrapers, from oxcarts to jet planes.

These are called secondary PROPERTY. They are secondary both logically and chronologically. In all instances, their existence is antedated by primary PROPERTY which led to their generation and employment.

Further derivatives of man's life lead to voluntary transactions involving PROPERTY transfers (sales, trades, gifts, etc.). Involuntary PROPERTY transfers are derivative not from the property owner's life but from the life of the coercer. Therefore, PROPERTY ceases to remain PROPERTY and is converted to plunder when subjected to involuntary (coercive) transfer.

Children-being young human beings-have PROPERTY rights of their own and cannot themselves be owned; children are not property.

Your ownership of PROPERTY is the basis of all you are, all you have, and all you can hope to achieve.


The right to property as a fundamental human right is an important idea, but economic government isn't just about property. Property isn't just a set of items or a piece of land, it's one of the tools our society has created to catalogue the ability of individuals to make choices about themselves and their surroundings. Therefore, while we use Dr. Galambos' definition of property as a cornerstone of our system, it is important to remember that our ideal is not about materialism, but rather a system in which coercion is not only no longer a tool for governmental institutions, but is riddled with disincentives between individuals as well.

The Solution: Economic Government

While it can be said that institutions would evolve in an orderly yet non-predetermined fashion in any totally free society. Nevertheless, all institutions originate as deliberate ideas, and it is useful to consider what shape a totally free society might take. The three institutions the Economic Government Group has initially proposed and is discussing are insurance, banking, and the innovation clearing house, or ICH. Let's briefly examine all three:

1.Insurance is a vital institution in a free society. The ability for individuals to pool their risk so as to minimize their personal liability is necessary for survival in a world full of uncertainties. Under political government insurance has a limited role, pooling risk mostly for real and personal property and for an ever decreasing fraction of medical costs. People insure their lives, but only for the income to which their families would never gain access should the untimely demise of the insured occur.

But what if the true power of insurance was unleashed? Insurance has the potential to more efficiently perform several useful functions currently handled by the state. Two of these are law enforcement and the regulation of businesses to ensure safe and clean processes and products.

Insurance can perform law enforcement by allowing individuals and businesses to purchase coverage against force and fraud. When a covered person or company is the victim of some sort of crime, a claim will be filed and the incident investigated by the insurance company. Once a suspect is determined, the insurance company will either send representatives to recover stolen property or collect whatever damages are determined by the policy to be sufficient restitution. In the likely event that the suspect also has a company covering him against force and fraud, the two companies will decide the matter through binding arbitration.

Among the benefits to this process is to privately regulate businesses. When a company purchases coverage for workers' compensation, the insurer will set standards of safety to which the company must adhere. When a company purchases coverage for parties that may be injured by the company's products, the insurer will set standards of product quality. Unlike political governmental regulation, a private insurer has the incentive to make the standards tough enough to provide safe products and workplaces, yet reasonable for the companies covered, or else they will seek out a competing insurer.

2.Banking plays an important part in the insurance/arbitration method of administration of justice. When an insurance company notifies a bank that it is holding assets of a depositor whom the insurer has determined must make restitution to a client, the policy insuring the bank's deposits will call for arbitration to avoid an incident between the bank and the inquiring insurer. Again, through peaceful means, a person who has committed force or fraud against another will lose access to his assets until he has made restitution.

3.A unique and important aspect to the economic government system is the proposed institution called the Innovation Clearing House, or ICH. The ICH serves two purposes in the totally free society of economic government. One is as a central innovation registry for patents, trademarks, copyrights, intellectual property, and the like. This is akin to the patent and trademark offices run by states today.

Another function of the ICH is that of knowledge tree. Each innovation would list the ones that came before that contributed to its development, and when registering an innovation, an innovator's registry fee would pay a small royalty to be divided among those innovators whose developments contributed to his or her success, portions of which would go to the antecedents of their innovations, and so on, and so on.

Those innovators who are alive or whose heirs are known would receive their royalties directly, but for those innovators who either left no heirs or whose heirs are lost in the mists of time, their royalty would go toward public goods that could be associated with what is known about their lives. For example, those fractions of royalties that made it to Archimedes' account could be used to fund non-profit civil defense organizations.

The ICH is partly derived from ideas of Andrew J. Galambos.

Is Economic Government Realistic?

Economic government has two other important questions to answer as well, namely whether a system consisting solely of voluntary institutions would be viable and if so, whether such a system could be brought into existence today. Historical examples like medieval Iceland, 18th century England, and even the 19th century American West suggest an affirmative answer to the former, and exciting ideas about how the rise of information technology and its promise of cheap encryption for everyone have been raised regarding the latter.

Obviously the ICH is not the sort of institution that would simply appear overnight. But an innovation registry on which it would be easy to make entries via the Internet would be a first step that could easily be made and promoted. In fact the Internet as a facilitator of information delivery may play as important a part in the decline of majority rule as the printing press did in the decline of the divine right of kings.

Stephen H. Foerster chairs the Economic Government Group.