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National Goods Versus Public Goods: Defense, Disarmament, and Free Riders

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Abstract

Of all the functions of the State, the one generally considered essential above all others is national defense. According to the popular ideal, national defense is a service provided by the State to its citizens. This service entails protection from aggressors outside the State’s jurisdiction, usually foreign States. The most sophisticated theoretical justification for State provision of this service is the public-goods argument. Economists have called many things public goods and then endlessly debated whether the label really applies, but national defense has remained the quintessential public good. Although rarely discussed in detail, it is universally invoked as the classic representative of the public-goods category.1

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References

  1. Among the few attempts of economists to look in any detail at national defense as a public good are Earl A. Thompson, “Taxation and National Defense,” Journal of Political Economy 82 (July/August 1974): 755–82

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  2. R. Harrison Wagner, “National Defense as a Collective Good” in Craig Liske, et al., William Loehr, and John McCamant, eds., Comparative Public Policy: Issues, Theories, and Methods (New York: John Wiley and Sons, 1975), pp. 199–221. Thompson’s article is a formal attempt to find the most efficient tax structure for national defense, based on the assumption that the need is a function of wealth, and has little in common with my approach. The Wagner article is a utility function analysis of the demand for national defense, and I will have occasion to mention it below.

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  3. After national defense, the lighthouse was probably economists’ favorite public good, that is, until Ronald H. Coase, “The Lighthouse in Economics,” Journal of Law and Economics 17 (October 1974): 357–76, demonstrated that historically lighthouses had been privately provided. Despite his demonstration, economists have not completely abandoned this example.

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  5. Important further developments in public-goods theory include Paul A. Samuelson, “Aspects of Public Expenditure Theories,” Review of Economics and Statistics 40 (November 1958): 332–38

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  12. Carl S. Shoup, Public Finance (Chicago: Aldine, 1969), pp. 66–74, which labels goods with non-rival consumption as “collective-consumption goods” and those with non-excludability as “group-consumption goods.” You can imagine how the poor reader must fare with only the huge difference between “collective” and “group” to navigate him through Shoup’s turgid explanation. Despite all that, Shoup’s treatment is exemplary because he remains the only economist, to my knowledge, not to classify national defense as a public good. Anticipating some of my argument, he puts it in a separate category altogether: “preservation of the nation-state.”

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  13. Tyler Cowen, “Public Goods Definitions and Their Institutional Context: A Critique of Public Goods Theory,” Review of Social Economy 43 (April 1985): 53–63, and Snidal, “Public Goods, Property Rights, and Political Organizations,” argue that non-excludability logically implies non-rival consumption. Snidal, however, arrives at this conclusion partially through a definitional sleight of hand. He invents a new term, “noncontrol over exclusion,” which he distinguishes from “nonexclusiveness.” The new term retains, under a slightly different name, an exclusion characteristic that can vary independently of non-rival consumption, whereas the older term becomes synonymous by definition with a public good exhibiting both characteristics. Many of the early criticisms of Samuelson’s original public-goods articles zeroed in on the polarity of his concept. For instance, see

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  15. The development of a more sophisticated approach can be traced through James M. Buchanan and M. Z. Kafoglis, “A Note on Public Good Supply,” American Economic Review 53 (January 1963): 403–14

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  17. Jora R. Minasian, “Television Pricing and the Theory of Public Goods,” ibid. 7 (October 1964): 71–80

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  20. E. J. Mishan, “The Relationship Between Joint Products, Collective Goods, and External Effects,” Journal of Political Economy 77 (May/June 1969): 329–48; and Head and Shoup, “Public Goods, Private Goods, and Ambiguous Goods.”

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  22. Murray N. Rothbard, “The Myth of Neutral Taxation,” Cato Journal 1 (Fall 1981): 532–46

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  23. Kenneth D. Goldin, “Equal Access vs. Selective Access: A Critique of Public Goods Theory,” Public Choice 29 (Spring 1977): 53–71.

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  24. To some extent, this position was anticipated by Earl Brubaker, “Free Ride, Free Revelation, or Golden Rule,” Journal of Law and Economics 18 (April 1975): 147–61. Brubaker argues that what he calls “pre-contract excludability” allows the market in many cases to overcome the free-rider problem. “Pre-contract excludability” involves contractually obligating recipients of the public good to pay on the condition that a specified number of other recipients pay. The entrepreneur does not produce the public good until the requisite number of recipients agree to the contract.

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  25. The definitive demonstration of the ability of the market, with discriminatory pricing, to provide non-rival, excludable goods and services is Demsetz, “The Private Production of Public Goods.” This possibility first became dimly appreciated when Carl S. Shoup, “Public Goods and Joint Production,” Rivista internazionale di scienze economiche e commerciali 12 (1965): 254–64, and James M. Buchanan, “Joint Supply, Externality, and Optimality,” Economica (November 1966): 404-15, noticed the analogy between non-rival consumption and the Marshallian concept of joint production, e.g., mutton and wool from a common unit of sheep. Paul A. Samuelson, “Contrast Between Welfare Conditions for Joint Supply and for Public Goods,” Review of Economics and Statistics 51 (February 1969): 26-30, unpersuasively disputed the import of this analogy

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  26. Earl A. Thompson, “The Perfectly Competitive Production of Collective Goods,” ibid. 50 (February 1968): 1–12, admitted that discriminatory pricing was possible on the market, but with a faulty model tried to show that the result was over-production of the public good.

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  27. John G. Head concludes that the major justification for government intervention, not just in the case of national defense, but in the case of all public goods, “will be found to derive fundamentally from the non-excludability elements rather than from generalized joint supply problems.” See “Public Goods: The Polar Case,” in Richard M. Bird and John G. Head, eds., Modern Fiscal Issues: Essays in Honour of Carl S. Shoup (Toronto: University of Toronto Press, 1972), p. 16.

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  29. David Friedman, in his defense of anarcho-capitalism, The Machinery of Freedom: Guide to Radical Capitalism (New York: Harper and Row, 1973), pp. 188–89.

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  30. Earl C. Ravenal, Defining Defense: The 1985 Military Budget (Washington, D.C.: Cato Institute, 1984). Public-goods theorists do occasionally admit that not all of the State’s military necessarily goes to defending the people, but they generally attach no theoretical significance to the admission. For instance, see Buchanan and Flowers, The Public Finances, pp. 27-28.

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  31. Randolph Bourne’s famous observation first appeared posthumously in an essay under the title “Unfinished Fragment on the State,” in James Oppenheim, ed., Untimely Papers (New York: B. W. Huebsch, 1919), pp. 140–53. A later version of the essay that restored Bourne’s original sequence, under the title “The State,” was included in Carl Resek, ed., War and the Intellectuals (New York: Harper and Row, 1964), pp. 64-104.

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  32. A general substantiation (or refutation) of Bourne’s observation has so far not attracted the professional energies of any historian, perhaps because they feel no need to belabor the obvious. There are lots of studies showing the growth of the State’s power in particular countries during particular wars, but very few that even treat a single country during more than one war, or more than a single country during one war. A few exceptions that have come to my attention include: Clinton Rossiter, Constitutional Dictatorship: Crisis Government in Modern Democracies (Princeton: Princeton University Press, 1948), a comparison of the U.S., Britain, France, and Germany during the twentieth century that concludes that the U.S. has the least bad record; Arthur A. Ekirch, Jr., The Civilian and the Military: A History of the American Antimilitarist Tradition (New York: Oxford University Press, 1956), which is primarily interested in American antimilitarist movements, but in the process gives a sketchy account of war’s impact upon the U.S. government’s power

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  33. Robert Higgs, Crisis and Leviathan: Critical Episodes in the Emergence of the Mixed Economy (New York: Oxford University Press, 1987), which also covers the U.S.—during the twentieth century—arguing that the mixed economy is primarily a product of war; and

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  34. Charles Tilly, ed., The Formation of National States in Western Europe (Princeton: Princeton University Press, 1975), as well as Tilly, “War Making and State Making as Organized Crime,” in

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  35. Peter B. Evans, Dietrich Rueschemeyer, and Theda Skocpol, eds., Bringing the State Back In (Cambridge: Cambridge University Press, 1985), pp. 169–91, both of which cover the war-related origins of the European nation-States.

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  36. I cite examples of economic models exhibiting the nationalistic fallacy of composition below. One of the very few written challenges to the nationalistic model is Murray N. Rothbard, “War, Peace and the State,” in Rothbard, Egalitarianism as a Revolt Against Nature: And Other Essays (Washington, D.C.: Libertarian Review Press, 1974), pp. 70–80. I have profited greatly from this pathbreaking essay.

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  37. See Don Lavoie, National Economic Planning: What is Left? (Cambridge, Mass.: Ballinger, 1985), and Rivalry and Central Planning: The Socialist Calculation Debate Reconsidered (New York: Cambridge University Press, 1985).

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  38. The approach in this article to the relationship between positive and normative economics is identical to the wertfrei approach of Ludwig von Mises, as expounded in Theory and History: An Interpretation of Social and Economic Evolution (New Haven, Conn.: Yale University Press, 1957), pp. 26-34, and Human Action: A Treatise on Economics, 3rd. rev. ed. (Chicago: Henry Regnery, 1966), pp. 881-85. See also Murray N. Rothbard, Power and Market: Government and the Economy (Menlo Park, Calif.: Institute for Humane Studies, 1970), pp. 189–96. A quite different formulation of basically the same approach is David Friedman, “Many, Few, One: Social Harmony and the Shrunken Choice Set,” American Economic Review 70 (March 1980): 225-32.

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  39. Historical generalizations of this sort are admittedly subject to many particular exceptions. Nonetheless, consult Hans Kohn, The Idea of Nationalism: A Study in Its Origins and Backgrounds (New York: Macmillan, 1944), pp. 16–17. For further details, see

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  40. Andre Corvisier, Armies and Societies in Europe, 1494–1789 (Bloomington: Indiana University Press, 1979)

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  41. John Childs, Armies and Warfare in Europe, 1648–1789 (New York: Holmes & Meier, 1982)

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  42. Geoffrey Best, War and Society in Revolutionary Europe, 1770–1870 (New York: St. Martin’s Press, 1982).

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  43. The first public-choice work to begin to apply public-goods theory to political action was Anthony Downs, An Economic Theory of Democracy (New York: Harper and Row, 1957), which examined political parties as vote-maximizing firms.

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  44. James M. Buchanan and Gordon Tullock, in The Calculus of Consent: Logical Foundations of Constitutional Democracy (Ann Arbor: University of Michigan Press, 1962), took a hard-headed look at the drawbacks of majority rule, although they coupled it up with an ethereal foray into the mystical realm of social contract. One of the most seminal contributions to this tradition, the first edition of which appeared in 1965, was Mancur Olson, The Logic of Collective Action: Public Goods and the Theory of Groups, 2nd ed. (Cambridge, Mass.: Harvard University Press, 1971). It applied public-goods theory to groups in general. William A. Niskanen, Jr., Bureaucracy and Representative Government (Chicago: Aldine-Atherton, 1971), introduced the notion of the bureaucracy as an independent special interest group. Further refinements upon how the democratic process benefits special interests include Gordon Tullock, Toward a Mathematics of Politics (Ann Arbor: University of Michigan Press, 1967), and Albert Breton, The Economic Theory of Representative Government (Chicago: Aldine, 1974).

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  45. Richard E. Wagner, in a review of the first edition of Olson’s Logic of Collective Action—“Pressure Groups and Political Entrepreneurs,” Papers on Non-Market Decision Making 1 (1966): 161–70—raises the political-entrepreneur thesis as an objection to Olson’s conclusions.

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  46. Norman Fröhlich, Joe A. Oppenheimer, and Oran R. Young, Political Leadership and Collective Goods (Princeton: Princeton University Press, 1971), stress the role of the entrepreneur in creating political organizations. Olson responds briefly in the 2nd ed., pp. 174-75.

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  47. Brian Barry, Sociologists, Economists and Democracy (Chicago: University of Chicago Press, 1978), pp. 37–40

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  48. Russell Hardin, Collective Action (Baltimore, Md.: The Johns Hopkins University Press, 1982), pp. 35–37, go into the weakness of the political-entrepreneur thesis in greater detail.

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  49. The fact that voting becomes less of a public good the closer the anticipated outcome of the election allows Yoram Barzel and Eugene Silberberg, “Is the Act of Voting Rational?” Public Choice 16 (Fall 1973): 51–58, to explain some of the variation in voter turnout. Nevertheless, voting remains the gaping hole in much of the public-choice literature. The fact that voting is a public good, and is not therefore “rational” according to public-choice assumptions, has been long realized. Yet, many public-choice theorists go on blithely spinning out elaborate models based on the untenable paradox that people always vote but in every other respect always behave “rationally.” Downs, An Economic Theory of Democracy, recognizes the problem but does not resolve it. For an extended discussion of this paradox, see Barry, Sociologists, Economists and Democracy, pp. 13-19.

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  50. Admittedly, there is some ambiguity about which ceteris remain paribus when varying group size. Some scholars have consequently challenged the claim that larger groups have greater difficulty overcoming the free rider incentive. See for instance John Chamberlin, “Provision of Public Goods as a Function of Group Size,” American Political Science Review 68 (June 1974): 707–16. Again, the best resolution of these questions is Hardin, Collective Action, pp. 42-49 and 125-37.

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  51. A similar point is made by Kenneth E. Boulding, “The World War Industry as an Economic Problem,” in the collection he co-edited with Emile Benoit, Disarmament and the Economy (New York: Harper and Row, 1963), pp. 3–27. He refers to the world’s competing military organizations as “milorgs” and insists that, in contrast to any other social enterprise (including police protection), military organizations generate their own demand. “The only justification for the existence of a milorg is the existence of another milorg in some other place.... A police force is not justified by the existence of a police force in another town, that is, by another institution of the same kind” (p. 10).

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  52. For the argument that revolution is a public good, see Gordon Tullock, “The Paradox of Revolution,” Public Choice 9 (Fall 1971): 89–99, which became with minor alterations one of the chapters of his book, The Social Dilemma: The Economics of War and Revolution (Blacksburg, Va.: University Publications, 1974). Tullock distinguishes between what he calls “exploitative” and “cooperative” governments, rather than democratic and undemocratic, but the two classifications are operationally almost identical.

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  53. One of the earliest observations that a social consensus always legitimizes the State is Etienne de la Boetie, The Politics of Obedience: The Discource of Voluntary Servitude (1574; reprinted, New York: Free Life Editions, 1975). La Boetie first wrote this essay in sixteenth-century France, while living under a despotic monarch. In other words, the concept of legitimized State, rather than being unique to democratic States, arose at a time when there were no such States to study.

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  54. Although Americans like to think that the Russian people share the aspirations of the widely publicized Russian dissidents, most observers report that the Russians view their dissidents much the same way as Americans view their traitors. Moreover, rather than desire more liberty, there is a considerable segment of the Soviet population that thinks the Soviet State is too soft. Despite official disapproval, this growing Stalin cult longs for the good old days of effective Stalinist discipline. Victor Zaslavsky, The Neo-Stalinist State (New York: Oxford University Press, 1983), has actually conducted fairly reliable surveys among Soviet subjects, which indicate quite unambiguously that the Soviet State is legimitized. For a look at some of the conflicting ideological trends within the Soviet Union, see.

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  55. Alexander Yanov, The Russian New Right: Right-Wing Ideologies in the Contemporary USSR (Berkeley, Calif.: Institute for International Studies, 1978). Good single-volume histories that impart an appreciation for the domestic sources of the Soviet State are

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  56. Robert V. Daniels, Russia: The Roots of Confrontation (Cambridge, Mass.: Harvard University Press, 1985)

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  57. Geoffrey Hosking, The First Socialist Society: A History of the Soviet Union from Within (Cambridge, Mass.: Harvard University Press, 1985). An introduction to the various interpretations of Soviet history by American scholars, written from a revisionist slant, is.

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  58. Stephen F. Cohen, Rethinking the Soviet Experience: Politics and History since 1917 (New York: Oxford University Press, 1985).

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  59. Among the economists that recognize the public-goods nature of ethical behavior are James M. Buchanan, in “Ethical Rules, Expected Values, and Large Numbers,” Ethics 76 (October 1965): 1–13

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  60. Richard B. McKenzie, in “The Economic Dimensions of Ethical Behavior,” Ethics 87 (April 1977): 208–21, and North, in Structure and Change in Economic History, pp. 11-12, 18-19, 45-46. Buchanan again touches upon this aspect of ethical behavior in “Before Public Choice,” pp. 29-30, where he emphasizes that ethical behavior involves a total externality—because an individual gains no benefits from his own ethical behavior—and in The Limits of Liberty, pp. 123-29, where he looks upon an increase in ethical free riding as an erosion of a society’s rule-abiding capital.

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  61. For a contrasting and ingenious attempt to interpret history as the working out of public-goods theory, rather than as the contradiction of it, see Mancur Olson, The Rise and Decline of Nations: Economic Growth, Stagflation, and Social Rigidities (New Haven, Conn.: Yale University Press, 1982). Although this effort is pioneering as far as it goes, it still depends at critical junctures upon historical accidents—wars, revolutions, and conquests—to sweep away the existing distributional coalitions. An even less satisfactory, although still very valuable efforts by economists to account for historical change without reference to people’s ideological preferences but purely on the basis of material factors is.

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  62. Douglass C. North and Robert Paul Thomas, The Rise of the Western World: A New Economic History (New York: Cambridge University Press, 1973).

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  63. Howard Margolis, Selfishness, Altruism, and Rationality: A Theory of Social Choice (Cambridge, Mass.: Cambridge University Press, 1982), p. 6.

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  64. Several scholars, noting the empirical problem with the free-rider assumption, are moving in this direction. For instance, Robyn M. Dawes, “Social Dilemmas,” Annual Review of Psychology 31 (1980): 169–93, suggests that altruism, conscience, and social norms are important individual ends. Barry, Sociologists, Economists, and Democracy, goes so far as to propose that a full understanding of human society requires two distinct approaches: the economic and sociological. He is building upon Mancur Olson, “Economics, Sociology, and the Best of All Possible Worlds,” Public Interest 12 (Summer 1968): 96-118, who contrasts economics, the study of rational action, with sociology, the study of socialization. Higgs, Crisis and Leviathan, chap. 3, discusses ideology at great length as the factor which overcomes what he calls “Olson’s Iron Law of Collective Inaction.” Similarly, North gives chap. 5 of Structure and Change in Economic History the title “Ideology and the Free Rider Problem.”.

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  65. Richard Tuck, “Is There a Free-Rider Problem, and if so, What is It?” in Ross Harrison, ed., Rational Action (Cambridge, Mass.: Cambridge University Press, 1979), pp. 147–56.

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  66. About a decade ago, a popular book, Harry Browne’s How I Found Freedom in an Unfree World (New York: Macmillan, 1973), attempted to convince people that among other things they should not try to change society through political action. Browne gave basically two arguments: (1) there are much better ways for people to attain directly the benefits they want (narrow self-interest), and (2) their participation in political action does not change society anyway (Olsonian “rationality”). His book was a best seller, but the fact that he had to write it at all indicates how infrequently these two motives fully govern people’s actions.

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  67. Those advocating voluntary funding of national defense through the sale of excludable by-products include Ayn Rand, “Government Financing in a Free Society,” in The Virtue of Selfishness: A New Concept of Egoism (New York: New American Library, 1964), pp. 157–63

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  68. Jarret B. Wollstein, Society Without Coercion: A New Concept of Social Organization (Silver Springs, Md.: Society for Individual Liberty, 1969), pp. 35–38

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  69. Morris and Linda Tannehill, The Market for Liberty (Lansing, Mich.: Tannehill, 1970), pp. 126–35

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  70. Tibor R. Machan, “Dissolving the Problem of Public Goods,” in Machan, ed., The Libertarian Reader (Totowa, N.J.: Rowman and Littlefield, 1982), pp. 201–08. Rand and Machan would still have national defense provided by the State, but one that collected no taxes. Wollstein and the Tannehills—whose separate works were reprinted together under the combined title Society without Government (New York: Arno Press, 1972)—prefer private alternatives. For a telling critique of the by-product theory as applied to national defense, see Friedman, The Machinery of Freedom, pp. 192-93.

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  71. The book which launched mathematical game theory was John von Neumann and Oskar Morgenstern, The Theory of Games and Economic Behavior, 3rd ed. (Princeton: Princeton University Press, 1953); the first edition appeared in 1944. According to Hardin, Collective Action, p. 24, the Prisoner’s Dilemma itself was first discovered in 1950 by Merril Flood and Melvin Dresher. A. W. Tucker, a game theorist at Princeton University, later gave the Prisoner’s Dilemma its name. For the personal reminiscences of one of the early researchers who worked on the Prisoner’s Dilemma, coupled with a survey of the studies of the dilemma up to the mid-seventies, see Anatol Rapoport, “Prisoner’s Dilemma—Recollections and Observations,” in Rapoport, ed., Game Theory as a Theory of Conflict Resolution (Dordrecht, The Netherlands: D. Reidel, 1974), pp. 17-34. Interestingly enough, despite the commonality between the Prisoner’s Dilemma and the public-goods problem, Samuelson in “Pure Theory of Public Expenditure and Taxation,” dismissed all game theory because “except in trivial cases, [it] propounds paradoxes rather than solves problems.”.

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  72. R. Hardin, “Collective Action as an Agreeable n-Prisoners’ Dilemma,” Behavioral Science 16 (September 1971): 472–81

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  73. Michael Taylor, Anarchy and Cooperation (London: John Wiley & Sons, 1976)

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  74. Hardin, Collective Action; and Robert Axelrod, The Evolution of Cooperation (New York: Basic Books, 1984). Axelrod confines himself to two person dynamic Prisoner’s Dilemmas, while both Taylor and Hardin consider n-person iterated games. For a good review of the growing literature on n-person games, see Dawes, “Social Dilemmas.” The conclusion of much of this work was anticipated by Brubaker, “Free Ride, Free Revelation, or Golden Rule,” who tested for cooperation on public goods with pre-contract excludability.

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  75. In Britain, unlike the U.S., significant segments of the peace movement do advocate unilateral disarmament, but even there, many of them view this as a realistic possibility only because of the existence of the U.S. military establishment. Within the U.S., the only individuals actually to endorse unilateral disarmament have been those who believe non-violent resistance is a practical alternative. They have recently begun to refer to themselves as the transarmament movement, because they wish to “transcend” reliance upon arms for defense. Their most prominent proponent is Gene Sharp. Making Europe Unconquerable: The Potential of Civilian-based Deterrence and Defence (Cambridge, Mass.: Ballinger, 1986), has been recently published. Others who have explored this option both here and abroad are

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  76. Anders Bosserup and Mack Andrew, War Without Weapons: Non-Violence in National Defense (New York: Schocken Books, 1974)

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  78. Stephen King-Hall, Power Politics in the Nuclear Age (London: Victor Gollancz, 1962)

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  79. Adam Roberts, ed., Civilian Resistance as a National Defense: Non-Violent Action Against Aggression (Baltimore: Penguin Books, 1969)

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  80. Mulford Q. Sibley, ed., The Quiet Battle: Writings on the Theory and Practice of Nonviolent Resistance (Chicago: Quadrangle Books, 1963).

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  81. Tullock is a most egregious example, because on top of other problems his model simplistically assumes that military protection always enjoys increasing returns to scale. He could profit greatly by incorporating some of the insights ofKenneth E. Boulding, Conflict and Defense: A General Theory (New York: Harper and Row, 1962), about the State’s multi-dimensional force gradient, which degrades over distance, or of David Friedman, “A Theory of the Size and Shape of Nations,” Journal of Political Economy 85 (February 1977): 59-77, about the limitations upon a nation’s size arising from the State’s desire to maximize tax revenues.

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  82. See Jeffrey Rogers Hummel, “Deterrence vs. Disarmament,” Caliber 9 (October/November 1981): 8–10; “On Defense,” Free World Chronicle 2 (January/February 1984): 18-23; and “A Practical Case for Denationalizing Defense,” The Pragmatist 3 (April 1986): 1, 8-10, and (June 1986).

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Hummel, J.R. (1990). National Goods Versus Public Goods: Defense, Disarmament, and Free Riders. In: Rothbard, M.N., Block, W. (eds) The Review of Austrian Economics. Springer, Dordrecht. https://doi.org/10.1007/978-94-017-3454-7_4

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  • DOI: https://doi.org/10.1007/978-94-017-3454-7_4

  • Publisher Name: Springer, Dordrecht

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  • Online ISBN: 978-94-017-3454-7

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