Libertarianism, Insurance Arguments, and General State Welfare
Richard A. Garner

Philosophical Notes No. 67

ISSN 0267-7091                   ISBN 1 85637 597 8

An occasional publication of the Libertarian Alliance,
Suite 35, 2 Lansdowne Row, Mayfair, London W1J 6HL.

© 2004: Libertarian Alliance; Richard A. Garner.

Richard Garner is a part-time student at Nottingham University researching a PhD in political legitimacy from the libertarian standpoint. He was born into a family of public sector, Liberal Democrat voting workers, first got interested in politics as an anarchist communist before progressing to full-blown free-market anarchism. He has worried many socialist anarchists in columns in the paper Freedom, advocated free-immigration and the abolition of taxation in his local Evening Star newspaper, self-published articles on radical libertarianism and reprints of Benjamin Tucker and Murray Rothbard, and contributed to Total Liberty and the Society for Individual Freedom's journal The Individual.

The views expressed in this publication are those of its author, and
not necessarily those of the Libertarian Alliance, its Committee,
Advisory Council or subscribers.



For those of us that reject traditional "natural law" or intuitive arguments for libertarianism, but instead draw upon contractarian justifications for our moral principles, we may face problems. Many modern defences of general state welfare are likewise grounded in contractarian philosophical defences. The contractarian libertarian has to argue why the principles underlying welfare statism would not be chosen as the principles of a hypothetical contract establishing the rules of justice.


Liberty as a Right

Libertarianism is the political philosophy that says that the guiding principle for our political and social arrangements should be that of individual liberty. It is a political philosophy concerned with individual rights, or, more properly, with the idea that we have only one fundamental right: that of liberty. Hence the name "libertarianism."

In examining the question of what is meant by the word "liberty," two questions arise. Firstly, what is the subject of liberty, the thing whose liberty we are meant to be concerned with? And secondly, what is it for this entity to be free or unfree? The answer to the first is that what is free is the practical agent, anything with a rational will to act. The answer to the second question, and perhaps the more controversial answer, is that to be free means that one is able to act without impediment, imposition, or restriction. Since we are concerned with moral philosophy, which is about how humans should act towards one another, and political philosophy, which is about the structuring of our human societies, it follows that the impediments and restrictions we are concerned with are human ones.

The right to liberty is a right to be free, and to be free means to be free to do what one wants. The question that often arises in libertarian discourse, however, is whether this right to liberty is, or should be, a negative or a positive right. You see, the study of rights has revealed the interesting connection between rights and duties. Rights, in effect, are claims on others--they constitute demands we make on other people. This claim can either be that these others do something, or that they refrain from doing something. The former is a positive duty, and the latter is a negative one, and so a positive right is one that produces a positive duty, and a negative right is one that produces a negative duty.

Applied to the context of liberty, a negative right to liberty produces a duty in others that they refrain from interfering with our freedom, or, better, with our actions. Hence we can be said to be free in the sense of enjoying our negative right to liberty if nobody is purposefully curtailing our ability to act.

On the other hand, a positive right to liberty would imply not simply that people refrain from curtailing our ability to act, but that they also provide for it. Libertarians believe that a proper understanding of the right to liberty reveals that the negative view is the only acceptable one for the simple reason that positive rights infringe on both negative and positive rights, and are incompatible with the notion of equality of rights.

For instance a libertarian will assert that Sam has a right to liberty which implies that he has a right to play football. When libertarians say this, they simply mean that people have an obligation to refrain from preventing Sam from playing football, or interfering with his doing so. This is the negative view. If we were to accept the positive view then we would have to say that people are obliged to enable Sam to play football. The dilemma comes in if we embellish the story further by saying that Sam has arthritis so severe that his ability to play football is nigh-on non-existent. Suppose that Harry is a doctor with the ability cure Sam, and so enable him to play football. The only trouble is that he doesn't want to.

In the negative view, Sam's rights remain intact. Nobody is stopping him from playing football. Nobody is curtailing his ability to do so. They simply aren't contributing to it. If his right to liberty is enforceable then there is no need to do so at this stage. However, in the positive view his rights are violated and other people's moral obligations go unfulfilled. For Sam's right to play football, his right to be free to play football, and so his liberty, if the positive view is correct, imply that the doctor is morally obliged to treat Sam's arthritis. Whether he wants to or not. What then becomes of all the doctor's projects? What becomes of his wants and aims, his goals in life and his ability to pursue his conception of the good? Firstly the enforcement of Sam's right would interfere with whatever it was that the doctor was doing rather than treat Sam. This would violate his right to liberty in the negative sense. Secondly, the enforcement of Sam's right would reduce the doctor's ability to do something other than treat Sam, hence meaning that making Sam able to play football means making the doctor less able to do something else, thus violating any positive right to liberty.

So liberty should properly be understood as a negative right. And so we may further develop our definition of libertarianism: a libertarian is somebody who believes that all our rights are negative. Liberty is the right to do what you want, in the sense that people don't purposefully interfere with, restrict, or otherwise inhibit your ability to go about your affairs as you see fit. In this way, liberty provides a framework within which each of us is able to pursue his or her own conception of the good, provided none of us interferes with liberty. Since the right to liberty is an obligation on others to refrain from interfering with our liberty, it follows that nobody has a right to interfere with other people's liberty. Therefore liberty must be an equal right.

Property Rights Derived From a Negative Right to Liberty

Libertarians, it is known, are strong believers in the right of private property for the basic reason that the libertarian believes that liberty and property are connected. How? Well, first, what do we mean by the word "property"? When libertarians use the word they mean, basically, the right to control a resource; the right to decide over it, or to determine its disposition. Hence Murray Rothbard argued that there is no public sector, that "public property" is really simply government property, since the government controls it.

We have a negative right to do what we want. However, in order to do what we want we necessarily must be doing what we want with something, even if that something is only a part of ourselves. My right to wave my arm in the air implies that I have right to do something with my arm, namely to wave it in the air. Hence:

…it is plausible to construe all rights as property rights. Whenever anybody has a right, Rx, to engage in any sort of actions x, we can find some thing or things y, such that that person must be understood to have, given that he has a right to engage in those actions, the right Ry, to use that thing or those things: Rx entails Ry. At a minimum, y is some part of that person's body or mind; the agent in question must employ his body and/or mind to do anything, and the liberty to do it will follow automatically from the liberty to use those pieces of human equipment as the person will.1

So liberty, the (negative) right to do as we want, implies the (negative) right to decide over the various things we do as we want with. After all, how could John Stuart Mill have had the right to write On Liberty, part of his freedom of discourse or expression, and so his basic liberties, if he didn't have a right to decide over the stylus he used to do it? And remember, this is a negative right, so his right to decide over it implies the question "how could he have had the right to write On Liberty if other people weren't morally obliged to refrain from interfering with or curtailing his ability to decide over the stylus he was using to do so?" His right to write his essay was part and parcel of his right to decide over that stylus. And a right to decide over, to control, to determine the disposition of something is what libertarians mean when they use the term "property." Hence Jan Narveson says:

Out there in the world people do things, and move about. They start using things, in various ways. By and by, established patterns of use will be confirmed with recognitions of rights. If I'm doing something with something, and was the first person to do so, and intend to keep doing it, then other people who propose to use it would be interfering with me if they didn't clear it with me. The general right to do what we wish enables us to claim items in the world as our property: property rights are nothing but non-interference rights over identifiable, establishable patterns of action. Often, of course, we will cross paths with others, and in the course of interaction we will come to make some agreements about who gets to do what, and with what. These agreements emerge from a background of freedom plus path-crossing. To enable each of us to have a rightful area of freedom, we swap our powers of action in such a way that this person is recognised as having this, that person as having that, and so on. Also we may find it helpful to establish common areas, such as parklands and sidewalks, which may be used by any peaceable person…2

So then, the general right to liberty is really only a right to self-ownership,3 property in ourselves, plus extension to that initial area that we form by our plans and actions in relation to other people. The general principle of initial acquisition is that you get whatever you are the first to use, since, if you are the first to use it your use cannot be interfering with the usage of anybody else, whilst anybody else coming along after you start using it and themselves proposing to use it will be interfering with your usage, and so violating your right to liberty.

From this, people's liberty rights are fairly easy to identify, since you simply do whatever you wish on your property so long as you don't interfere with the rights of anybody else over their property. Property, then, makes interpersonal liberty possible and coherent. The right to do as you want with your own property clearly involves the right to give it to somebody else. This you might do because you care about them very deeply. Alternatively, and more likely, it is something you might do in order to get that somebody else to give you something else you value more than the original item. On the whole, then, our lives would mainly consist of series of voluntary exchanges between people who would otherwise keep interfering with each other with no clear view of who gets right of way.

Why Accept Libertarianism? The Contractarian Argument

This goes on to answer the further question: Why believe that we have rights, especially the libertarian view of them?

The answer to this question, I believe, lies in contractarian moral philosophy. Contractarianism is good for when other moral philosophies don't work. For instance, if you are debating a theist on the existence of God then you may well come across the objection, "but if God doesn't exist, why be moral?" Or when pointing out that there are no natural moral laws, a natural law theorist will often say, "well, why be moral then?"

These people are scared. That's simply it: They recognise that morality is of value, and they want a means to secure it. But that is the answer to their own question: Why be moral? Because morality is valuable.

Contractarianism is not the belief that we have, at sometime, entered into a contract to agree to abide by certain moral precepts. This would be an indefensible position for two reasons: Firstly, no such contract exists. Secondly, question of keeping your contracts or even keeping promises and not lying is itself a moral question. Instead Contractarians ask what the contents of such a contract might well be, against the background that the moral rules that we ought to abide by are those that it is reasonable to expect rational people to adopt.

However, it is necessary to expand this point by examining just what is meant by the term "morality."

Firstly, I can start by rejecting a particular view of Natural Moral Laws. There are those who believe that, since man is, then man is something, i.e. man (meaning mankind here) has a specific nature. Natural law theorists then go on to say that moral precepts are discernible from the nature of man just as any other existing thing. One argument is that all morality centres around the idea of values, but that all values are secondary to life, since no other value can be pursued if we are dead. However, in order to survive and live an enriching life, we have to produce, and in order to do this we have to use our minds. This means we must be free to plot our courses of actions and to carry out these plans. Hence our natures seem to dictate that we need liberty.

The trouble is that this provides good reason as to why I want liberty, but absolutely no reason why you should grant it to me and absolutely no reason why I should grant it to you. This is the flaw: It fails as a moral theory because it fails to provide a body of generalisable rules, a body of rules that binds everybody.

This is because moral laws are prescriptive, not descriptive. So, when looking for moral rules, so far we know that we want moral rules that are binding on everyone, which is reflected in the fact that moral rules are prescriptive.

So, the contractarian position is actually that the moral rules we should follow are those that it would be reasonable to expect all rational people to adopt. It says that since there are no natural moral laws, no God-given moral guides, and that we cannot rely on moral intuitions since intuitions often contradict each other, the only moral rules that should constrain our actions are those that rational individuals would choose for themselves. However, whilst it is true that people need to choose, it must be understood understand what it is they are choosing. This is because of our insights as to what a morality is for. For example, you may decide your morals--for instance, the view that theft is morally justifiable if the need is great enough--but only for yourself. The trouble is you are not the only pebble on the beach. We live in social surroundings, under which circumstances we are likely to come into contact with each other. Couple this with the fact that we all have different values and desires, often very different, and we basically get the question of how this helps us at all? How has choosing a morality only for ourselves made any difference to not choosing one at all? Morality is necessary in order to regulate the behaviour of everybody, because there are things we don't want others doing, things we want to be able to do, and vice versa.

This is the point: The morality I choose can't only be the one that is the best choice for me, or the one you choose should only be the one that is the best, most rational choice for you. It has to be the best for all of us. This is because morality is necessary only because we are social, and come into contact with others. If you think we should choose only for ourselves, then consider this: What point would there be in choosing a morality if you were the only person in the world? None. Why would you care if you led a moral life then?

Hence Jan Narveson writes:

What we are arguing for is general principles of action for regulating our mutual behaviour. We would like to have the best such principles... We interact with lots and lots of people, most of them total strangers. Which principles, limiting our own and everyone else's conduct, would the rational person go for? Well, this question surely segues into another: what is it reasonable to expect of them, and what is it reasonable for them to expect of us? Obviously we need a principle that people with different values would all find it rational to accept. Precisely because they are so different, if they were to act exclusively on the variable values they have, we'd soon get into trouble.4

We can, therefore, talk about which is the correct moral theory by attacking the groundwork of others as not being satisfactory to the social contract--not being a set of principles that would be accepted by everybody. This is one answer to many who reject the contractarian thesis. They observe what is basically true: That in choosing the moral principle I think I should live under, I would choose the one that does best for me, you would choose the one that does best for you, etc. and we would wind up with the kind of mess we think morality is necessary to prevent, the kind of mess that we are trying to contract out of. The key, though, is that the principle to be chosen can't be just a personal principle, precisely because that leads to a situation no different from one in which no principle was chosen at all. Instead, the contractarian is saying that the principle of morality or justice will be that which is best for me, provided that it also best for you, him, her, and everybody.

So which principle of justice is that likely to be? The answer is that we should prohibit just those actions that would worsen the situation of others. Worsen in relation to the way things would be were the offending agent not around - in short, by comparing what I actually do with what would have occurred in my absence. As Narveson goes on:

Borrowing a famous analogy from Nozick, suppose that people lived on separate islands, with no knowledge of each other's existence. Then it can hardly be reasonable to impute injustice into any of their activities: no one can worsen the situation of others relative to one's absence, because everyone is absent. Once interaction sets in, however, injustice can arise. If the As take from the Bs what the latter have produced by their own efforts, without recompense, they better their own situation by worsening the situation of the Bs, as to how it would be for the Bs if the As didn't exist. In short, they take advantage of the Bs.5

You can do what you like, so long as you do not make others worse off than were you not around. This view smacks very heavily of libertarianism. David Gauthier expands on this:

Each person, in the absence of his fellows, may expect to use his own powers but not theirs… Thus the proviso, in prohibiting each from bettering his own position by worsening that of others, but otherwise leaving each free to do as he pleases, not only confirms each in the use of their powers, but in denying to others the use of those powers, affords to each exclusive use of his own. The proviso thus converts the unlimited liberties of Hobesian nature [the moral-less situation we were trying to escape by establishing the contract] into exclusive rights and duties. Each person has a right to the exercise of his own powers without hindrance from others, and a duty to refrain from the use of others' powers in so far as this would hinder their exercise by those with direct access to them.6

As Narveson notes, this amounts to a prohibition on force or fraud. It definitely amounts to a prohibition against interference with the actions of other people, an, perhaps less stringently, with their plans and goals. Thus it amounts to the liberty principle. It is rational because violations of this principle are Pareto inefficient. That is to say, one person could be made better off without making anybody else worse off. If agents are rational, then we cannot expect voluntary agreement to anything less. The principle of justice does prohibit violations of the Pareto condition measured against the baseline of zero social interaction. We can expect this principle of justice to be the outcome of the social contract, in short, because we have no good reason to believe that anybody would voluntarily enter a contract that established as a principle that it would be just if they made be worse off than if they did not interact with anybody.

This last point can be emphasised by examining competing political philosophies. Take strict egalitarianism, which says that everybody should be equally well off (in a simplistic view of egalitarianism). The implication of this is that we should prohibit anybody from being made better off unless everybody is made equally better off at the same time, even if nobody is made worse off.

A problem with this theory, though, is that it would justify actually making everybody worse off than they would otherwise be, just so long as they are all equally badly off! It is clear that this principle would not be chosen as a principle of justice or morality, then. To see why, imagine two countries, A and B. In country A strict equality pertains and nobody is better off than anybody else is. In country B, however there are great inequalities. However, even the worst off in country B will be better off than anybody in country A. Which country would the rational person choose to live in? Surely B.

This argument is that egalitarianism restricts Pareto improvements. A situation is efficient in a Paretian sense when it cannot be improved upon, meaning that nobody can be made better off without making anybody worse off. If there were a change under which the situation of one person could be improved without harming that of others, the strict egalitarian principle would forbid it. This is unlikely to be the choice of rational agents forming an agreement on principles to mutually bind their behaviour.

Suppose we soften the egalitarianism by introducing a theory popular among some liberal philosophers: That we permit some inequalities, but only if the inequalities make people in general better off, or at least make the worst of members of society better off, than they would otherwise be. There has been some argument to suggest that this would be a rational principle for reasonable people to adopt in the social contract. After all, if everybody in country B were actually worse off than those in country A, then the egalitarian country would be the rational choice… But not for the sake of its equality, only because it made everybody, including the worst off sections of society, better off than they would otherwise have been.

However, I suggest that this principle will not be adopted in the social contract. Note that its implication is that inequalities are justified if and only if they benefit either the rest of society, or/and the worst off members of society. However, it is logically possible for an inequality to neither benefit nor worsen anybody in society, including members of the worst off. The softer egalitarian position would still prohibit such an inequality. Hence the soft egalitarian principle is still likely to be rejected by rational people forming an agreement on principles that would mutually constrain their actions. Harry is likely to reject a principle that would allow Mary to better herself at Harry's expense, and so Mary would reject it too, since mutually agreed principles are what we are looking for. But why would Mary adopt a principle that would forbid her from bettering herself in relation to Harry, but without harming Harry? Especially since Harry has no reason to object to Mary making herself better off if he himself isn't being made worse off by her actions.

The egalitarian may claim to be able to water his argument down further: The principle we shall adopt is that inequalities will be justified if and only if they make nobody worse off than they would otherwise have been. This clearly seems to be more rational for reasons given above.

But what difference is there between this and the liberty principle? This is a general principle that says that you can do what you want so long as you don't worsen the situation of others. It amounts to not interfering in the actions that people are performing and not taking away the things they are using or feature in their plans. This is identical to the principle libertarianism suggests. It does not suffer the same Paretian deficiencies that egalitarian suffers, for, though it doesn't guarantee that anybody's situation will be improved by its adoption, it does guarantee that nobody will be made worse off. And it also guarantees that nobody will be prohibited from attempting to make himself or herself better off so long as they don't harm the situations of others.

We have thus grounded the right to liberty by showing why it would be the principle of justice that it would be reasonable to expect everybody to adopt. The liberty principle gives us all a basic right to do what we want, constrained only by a similar right belonging to others. This is barely different from the principle we said would be established by the moral social contract, that people be free to do as they want so long as they don't worsen the situation of others compared to how those others would be were the offender not around. This gives us liberty in the negative sense of being free to utilise our powers without them being utilised by others without compensation, and so free to do as we want without interference. Being free to do as we want without interference or impediment means being free to control what we are using to do what we want without impediment. This establishes a negative right to property.

Summary of Libertarianism, and its Implications

Hence people should not interfere with what we do with our own person or property. Since governments are people, this means that governments should not interfere with what we do with our person or property either. Nozick tells us why this frightens the non-libertarian horses:

Two noteworthy implications are that the state may not use its coercive apparatus for the purpose of getting some citizens to aid others, or in order to prohibit activities to people for their own good or protection.

Despite the fact that it is only coercive routes toward these goals that are excluded, while voluntary ones remain, many persons will reject our conclusions instantly, knowing they don't want to believe anything so apparently callous toward the needs and sufferings of others.7

The only just social arrangement, then, is that which arises spontaneously from the free interactions of each agent in full possession of his powers, i.e. that which is consented to rather than that to which he is forced to contribute. Some opponents of libertarianism, such as Alan Howarth or G.A. Cohen object that the market economy cannot satisfy this, since, whilst each person can be said to consent to his part of the market process, he knows nothing about the multitude of other interactions nor about their likely consequences, and so does not consent to the arrived at arrangements of the entire market system. However, when we use the word consent here, we are saying that each person is able to act unmolested, not that each person knowingly chooses a particular outcome. In other words, that they are not coerced into choosing an outcome, not that they know the outcome they are choosing.

Only if the state can be shown to come about by these spontaneous arrangements can its existence be justified.


As libertarians, we know our views are unpopular. They imply extreme laissez faire, in the literal sense--leave it alone; hands off.

People tend to disagree with us, because they assume that the possibility of a libertarian society would threaten their attainment of various ends. Often they argue against us in terms of justice, asserting that attainment of these ends can be viewed as part of our rights. They argue that ends such as a universal attainment of a certain level of education, a universal minimum income regardless of desert, the extension of this basic income into old age to cover against insecurity, and high levels of medical attention are requirements of justice, and hence the welfare state is justified in providing the for us. However, it is difficult to see how these could be requirements of justice if justice is only concerned with fundamental rights, and more so if these rights are generated in a contractarian manner. They cannot simply snatch their moral views from the air!

However, many modern theorists do not argue for the welfare state in this manner. Instead they frame the issue as an insurance argument. These arguments avoid any claims to rights. Instead, their premise is simply that the things in question, such as a minimum guaranteed income, especially in old age, are sufficiently important from the point of view of any person that he or she would do well to take out insurance against them. For example, we have the position of the modern egalitarian philosopher, Ronald Dworkin.8 Dworkin, on one hand, argues that markets are just. He holds that to show respect and concern for people who have different, but peaceful, views of the good life, different preferences and ambitions, etc., justice mandates that individuals have the right to act in accordance with those views and have the freedom to pursue, revise, and realise their ambitions and goals. Further to this, such respect requires that one be held responsible for one's own choices, since it would be grossly unfair to expect those who are morally obliged to respect people's rights and not interfere with the choices they make to then also have to subsidise the costs of the right holder's choices. Hence, Dworkin argues, a system which allows people to make choices, gives people information about the costs of their choices so that these choices can be informed ones, and holds people responsible for there choices, would be just. Markets do all three things. So, if we lived in a world in which we all began in roughly equal circumstances, then any inequality in wealth and income that resulted would be just, for it would simply reflect people's choices about how to live their lives, as revealed by their trade-offs of work and leisure, their trade-offs between savings and investment for consumption, the extent to which they discount the future, their occupational choices, etc.

However, Dworkin goes on, we obviously do not live in such a world. Here in the real world people find themselves in unchosen circumstances with varying degrees of advantage or disadvantage. Dworkin holds that when markets reflect or compound unchosen disadvantages that may result from one's natural endowments, or one's race, or family or social background, etc., then markets do not embody justice, but injustice. Hence, for Dworkin, welfare state policies that interfere with the workings of the market are justified insofar that they correct for the unchosen disadvantages whilst still leaving people free to act on their peaceful ambitions and conceptions of the good.

Insurance arguments, and positions like Dworkin's, ask, basically, do we want to throw ourselves entirely on the tender mercies of the free market for these essential goods in life, without protection against the exigencies in life. These might, in particular, include unexpectedly high health care costs, job loss not due to culpable incompetence (because, for people like Dworkin, culpable incompetence is something that you are responsible for--it is a choice you make), inability to make a living due to the death or desertion of a spouse or family member (or anybody else) upon whom you were dependent, being suddenly left with the family in one's sole care, or just plain unemployability due to the present situation of the job market.

The argument thus goes that if the typical rational adult would take out insurance against these things then a further move towards the state leans on premises about efficiency and certainty. If the state guarantees the benefits we don't need to worry about our insurance company going broke or making a bad choice in our case. If everybody is covered, then economics of scale are realised. The resulting insurance will be cheaper and better, then, if it is universal. But if the benefits are worth it to everybody, then those accepting them without paying would be free-riders of the culpable kind, i.e. those who free ride even though it is perfectly possible for them to avoid the benefits. Thus, then, insurance may be financed out of general taxation.

How, then, does the libertarian answer this argument for compulsory social insurance?


Good libertarians have an answer to all objections, and the libertarian answer to this one is, at least abstractly, very compelling. In fact, I would agree with Jan Narveson that the argument I am about to present is utterly decisive.

Insurance and the Tender Mercies of the Market

The answer comes in two parts. Firstly, the alternatives of "throwing oneself on the tender mercies of the market" and having sufficient insurance against these unchosen disadvantages are not exclusive alternatives and never have been: It is perfectly possible to throw one's self on the tender mercies of the free market and cover one's self against the exigencies in question by simply taking out free-market-generated insurance against whatever unchosen and risky thing you are inclined to feel the need for protection against. In that classic work of libertarian Science Fiction, The Moon Is a Harsh Mistress, Robert Heinlein describes a world without social insurance. When asked how society manages without all the things that Earth's governments provide, the chief protagonist responds:

Free Hospitals--aren't any on Luna. Medical insurance--we have that but apparently not what you mean by it. If a person wants insurance he goes to a bookie and works out a bet. You can hedge anything, for a price. I don't hedge my health, I'm healthy. Or was 'til I came here.9

In one sense, this is all insurance is. If you are worried that something bad will happen to you, you find someone willing to take your bet, bet them that this bad thing will happen to you during some period of time, whilst they bet you that it won't. If it does, they pay you.

Gregory Sams, in Uncommon Sense: The State is Out of Date, wrote:

What insurance actually does is buy your risks, worries and fears from you. Since you view these things as being negative in value you pay them rather than the other way around…

This industry didn't develop as a result of any government initiative other than own natural desire to create social and enterprise structures that help in governing our lives on all levels. The insurance industry started at a coffee-house in London called Lloyd's, which was frequented by merchants and ship-owners. At some point in the late 17th century one of them, or perhaps Edward Lloyd himself, had the idea that the individuals in the group get rid of the ever present risk of personal financial ruin if somehow the group shared the risk. Rather than ask everybody to put something in the pot to cover any eventualities, which might have caused some resistance, they jointly agreed to pay out whatever portion of a risk they shared, only if it came to pass. So that they would hopefully never need to dip into their pockets, a charge was made to each ship owner or merchant based on the value of what was insured and at an estimate of the risk. It was a small cost of business, since most ships and cargoes did come through.10

Extensive social insurance was provided very successfully in the past, and by poor people themselves, all without the need for compulsion and the state. Tim Evans, of the Libertarian Alliance, wrote of the friendly societies:11

In 1801 F. M. Eden estimated that there were about 7,200 societies with a total of 648,000 members in Britain. Other estimates suggest that by 1816 this number had grown to include at least 925,000 members. Throughout the century, trade union ideas and influence spread. By 1851, for instance, organisations like the Amalgamated Society of Engineers oversaw tens of thousands of members each paying a shilling a week. In return their members received a full range of benefits including allowances for sickness. By 1910 there were over six and a half million friendly society members (not including those in organisations which avoided registration with the authorities).

Significantly, the rate of growth of the friendly societies over the preceding thirty years had been rapid and was accelerating. In 1877, registered membership stood at over two and three quarter million. Ten years later it was over three and a half million and increasing at an average rate of at least 90,000 a year. By 1897 membership reached 4.8 million and was increasing on average by 120,000 a year. And by 1910 the figure had reached 6.6 million, having increased at an average annual rate since 1897 of some 140,000 members a year.

It is important to remember that these figures simply reflect the numbers known" to the Government. For many societies preferred to avoid even the minimal interference of the British state, and simply "failed" to register.

Asked in 1892 what proportion of the working classes were insured against sickness through a building society or a trades union, the Chief Registrar of Friendly Societies answered that, of seven million male industrial workers, around 3.8 million belonged to the registered friendly societies while at least another three million belonged to those which remained "unregistered".

Dr Evans quotes the General Registrar of friendly societies as saying at the end of the century:

…it remains one of the great glories of the Victorian era that welfare has been established in a very large degree by the labours and sacrifices of working men themselves, and by the wise and judicious legislation which has permitted and encouraged their endeavour in the direction of self-help.

But What if the Market Doesn't Provide Enough Coverage?

The second part of this argument concentrates on the important question of whether the free market will supply "enough" protection, especially to those who cannot afford it. The reply to these challenges is in three parts:

(1) Compulsory protection may well not be able to supply "enough" either. As Jan Narveson notes, "certainly we will be able to find, for any level you care to name, some individual who wants more; and it is difficult to see how any premises that allow scope for freedom could claim to identify a 'correct' amount for all and sundry."

In fact we may go further than this with two other points. Firstly, the effects of providing a good at lower than its market price are that the good will be over consumed. When the state provides us with something for free, or at a lower than normal price, it effectively creates a form of market failure called a negative externality. You see, when a person gets both the costs and the benefits of his actions, if he is rational he will only perform those actions he thinks are worth doing; i.e. the actions he thinks deliver benefits that are worth enduring the costs. If somebody else is paying the costs, on the other hand, perhaps because they have been forced on somebody else via state action, he won't have to consider whether his actions are worth their costs. We know that the cheaper something is, the more of it people are likely to consume, so the end result is that in effect the state is likely to supply not "enough" insurance, but too much--more than its recipient would actually think is worth providing. This will lead to perpetual complaints of shortages, whilst the taxes used to subsidise the lower prices will lead to a fall in productivity throughout the economy.

On top of this, production necessarily precedes charity. You cannot feed the poor if there is no food. The philanthropist cannot give the need his money if he has no money or if there is nothing to spend it on. Therefore you cannot help the poor by using policies that would be deleterious of production. And all taxes and regulations reduce productivity.

(2) The second response cuts back to the ethical and philosophical issue at hand: The cost of protection in the compulsory scheme is thrown on all whether they want to pay that much or not; however, surely no contractarian moral philosophy could provide a principle that could be foreseen to require people to pay for things they don't want whether they like it or not and independently of any benefit to them. This is clear for the same reason that contractarianism yields the liberty principle: Nobody would agree to an arrangement that would leave them worse off than they would otherwise be.

But if contractarianism cannot yield this principle, what moral philosophy could. Where do these moral imperatives come from? We would have to go back to flawed moral theories such as utilitarianism, natural law, or divine will.

(3) Now, though, we reach what I consider to be the most damning argument the libertarian can present against at least most advocates of compulsory social insurance. This argument is that nobody advocates such measures independently of democratic procedures. Proponents of compulsory social insurance generally insist that their scheme would be popular with voters and that it would not be legitimate to impose it were this not the case. So let us imagine that it is indeed highly popular, then. But then, if the value of having this insurance is so great and the scheme is as popular as the argument demands, it would also be possible to form a private insurance scheme with essentially the same schedule of costs and benefits, but which extended its benefits and costs only to those who were interested in sharing in those benefits at those costs. So why would we need to go all the way to a compulsory scheme?

Narveson sums this point up:

The point abut this last argument is that some necessary conditions of the acceptability and workability of the compulsory scheme under consideration are such that a noncompulsory scheme must be possible offering the same advantages but without the disadvantage of being compulsory. And so it merely remains to point out that one who was contracting for general social arrangements could not be understood to consent to arrangements requiring us to pay costs for unnecessary benefits.

This last argument is, then, a dominance argument. It says that from the contractarian point of view, libertarian systems dominate their alternatives. The fulcrum of such arguments is that rational persons cannot be in favour of outcomes that, by definition, they are not in favour of. It's pretty difficult to knock that principle, I should think. And so it seems that, at least abstractly, the argument goes through pretty smoothly.

In other words, if this insurance scheme is popular enough with voters that they would vote for their money to be used to be used in such a fashion, it is plainly going to be popular enough for them to voluntarily spend their money on it. And if it was not popular enough for them to choose to use their money to support it, it then cannot be presumed that they would vote for it. As Narveson wrote elsewhere:

It's a bit crazy to try to justify an involuntary exchange with an argument that it is such a keen deal that we would take it even if we had the choice. For if that were true, then it of course would not need to be involuntary, now, would it? For then we'd do it anyway! Freedom is all we need to get the benefits of freely made deals. And it is very much what we need to avoid the downsides of unfreely made ones.12


The Economics of Charity

Many people don't object to libertarianism as a threat to things they already enjoy. They accept that they could just as easily get them through the free market: "Sure, I can afford health insurance, so I certainly don't need taxation to provide me with health care… but what about the poor?" "What about the Poor?" can just as readily apply to "What about the Handicapped?" especially the paraplegic? The position is basically, "sure, I can help myself so I don't need someone to do it for me, and on those grounds, sure I object to being forced to pay the guy supposedly helping. But what about those that can't help themselves?"

Libertarians are often strong in their principles and unyielding in the face of this objection: They might sometimes turn around and say, sure, worst comes to the worst, those born disabled can starve in the gutters, and that would be a more just outcome than if people were forced to provide for them. On philosophical grounds I might agree with this. Forcing people to provide for others certainly violates rights that I think are the likely outcome of the only reasonable basis for a moral philosophy I know of: Either it is wrong to force people to provide for others, or morality doesn't exist. That's my basic position.

However, this ends up being unpersuasive, and definitely very unattractive. An alternative is to say that simply because libertarianism is opposed to forcing people to provide, through labour or through commitment of resources, for the good of others, there is nothing in libertarianism that prohibits people voluntarily helping others. Indeed, it follows from the assumption at the core of libertarianism, that each of us should be at liberty to dispose of ourselves and whatever resources we justly acquire, however we choose, that any prohibition of charity would be an injustice. If you want to help others, especially those who can't help themselves, you could donate to charity. Even a philosopher as sceptical of the libertarian position as Jonathon Wolff notes that "The distinction between the morally right and the rightfully enforceable is one we commonly make in other cases."13 So whilst it may be absolutely wrong and utterly unforgivable for me not to cross the road and go to the aid of someone collapsed on the pavement, we might still be unhappy with the prospect of this immoral choice being made illegal. Wolff notes that "libertarians point out that taxation for redistributive purposes does in fact make it illegal not to contribute to alleviating the plight of the badly off. But it is quite consistent to believe that morally one should aid the poor and sick, and yet that one should not be forced to do this."

In fact, from a particular point of view, taxation makes it illegal for me to help the poor. After all, the more I am taxed, the less I have left to spend, and so the less I can afford to give to the poor. I might think that the best way that I can help, say, children in poverty, is to give to the Save the Children Fund, but if I cannot afford to do this because the state has forced me to hand over my money for its purposes, which may include its only child poverty scheme that I happen to think it inferior, on what grounds can someone accuse my protests at compulsory taxation of disregarding the needs of impoverished children?

There are certain very good economic arguments as to why we should think that charity would do a better job of helping those in need than state welfare, all ultimately resting on the fact that the difference between state welfare and charity is that the latter is voluntarily funded and voluntarily consumed.

Firstly consider the problem of welfare-scroungers. These are the old Spencerian "undeserving poor," those that are perfectly capable of getting by on their own efforts but choose not to. Now, I'll stop at this point and point out that I am not asserting that these people exist and that present welfare consumers include such moochers - I am simply pointing out that such people might exist. One reason why we should object to their existence is not that we are selfish and want to give away as little as possible, so that means not tolerating free-loaders. That's a good reason, but another is that we genuinely want to help those in need. Someone who is consuming state welfare but doesn't need to is using up valuable resources that could be spent on those with genuine needs. The welfare scrounger is making it harder to help those in trouble by reducing the amount of resources available to help them.

Now, it is a generally accepted economic fact that the more you pay somebody to do something, the more they do it. It is also generally accepted that if the income available to earn in an industry rises, the number of firms in the industry, or the size of firms, will increase to a point at which the new income is all consumed and firms are earning normal profits. These points, however, apply to welfare users. The more people are paid for signing onto welfare, the more people will do so. Add to this the possibility that welfare payments exceed expected earnings in available jobs (as is actually the case in some parts of the US: welfare payments are sometimes higher than minimum wage), we get the possibility that people will be tempted out of gainful employment and onto the dole cues.

Now add the fact that state welfare is funded by taxation. When I buy an orange and you sell me an orange, we can be pretty sure that the result is a Pareto improvement, and that I am better off and you are better off. This is because, in all likelihood, we would not have agreed to the exchange if we didn't think we would be better off doing so. Likewise, if I give to a charity we can expect that I am better off afterwards than I were before, since if I didn't prefer that use of my money to an available alternative, why would I have consented to it? When the state taxes money from us, however, there is no way it can tell that it is making us better off. If I was forced to spend the money on the orange, then how could we know that I was better off than had I spent the money on something else? This problem adds to the further problem that by allocating resources through taxing and spending, the state has no price mechanism according to which to rationally plan the economy. Since it can't tell what goods are in demand it cannot know if it is spending resources where they are most valued.

In addition, taxes always reduce productivity. When we work for money we essentially buy a wage by spending our labour power. Price theory says that the more of something you buy, the lower the marginal utility of an additional unit of it would be for you. Therefore, the more wages you buy with your labour, the less an additional unit of wage (or perk at work) will be worth to you. By analogy: suppose you were hungry for cake. You see someone selling cake for 50p a slice, so you buy one, since it is worth that to you. The baker then offers you another, eager to take a further 50p from you. You are a little less hungry, but you still buy it. The baker then offers you a third slice… However, buy this time you aren't as hungry as you were, and cake is getting a little boring. The prospect of an additional unit of cake is less important to you than getting the first, and the second, so you decline.

In order to get you to buy the cake, the baker would have to, effectively, reduce its price to you. Likewise, since the prospect of earning more wages after a point gets less and less important to you, in order to keep you "buying" your wages, after a point, the employer has to lower their price. By slapping a big heavy tax on them, though, the state makes sure the price stays high. Whereas, for instance, you may have been happy working a further nine hours for a further £50, you may well be less willing for £40, which would be the case if the state slapped on a 20% tax.

Hence taxation leads to lower productivity, and so to lower growth, and misallocates resources; and increased welfare payments leads to increased welfare demand, which requires more taxes.

Now look at charity, though. Charity doesn't misallocate resources in the same way as the state does, since, through the fact that you chose to spend your money on donating it to charity, charity reflects your preferences and so doesn't deviate from your demand schedule so much. Likewise, since you gave to charity because you wanted to, charity doesn't constitute a cost that would deter you from producing - after all, it is one of the things you want to do with the money you are working to get. Hence, whilst the absence of a price mechanism makes allocating resources hard through charity, it is easier than via taxation and far less harmful to the general state of the economy.

Since charity is voluntary, it has no guaranteed revenue, unlike the state. Oxfam can't say, "You don't want to give to us? Well that's tough, do it or else we'll do something nasty to you." Since a charity can't guarantee that people will keep on paying into it, it has to continually do a good job ensuring that people have a reason to do so. Since people give to a charity in order to achieve some result, for instance, give to Oxfam in order to help feed starving Africans, this means that a Oxfam has to ensure that it actually doing the best it can to feed the starving Africans. It also means that it has to work to keep down its overheads, so that it frees up resources to use on achieving its stated purpose. State welfare, on the other hand, since it doesn't need to prove to taxpayers that it is helping (taxpayers can hardly cancel their regular donations in disgust!), has less of an incentive actually help those it exists to serve. In addition, it has less of an interest in ensuring that its overheads stay low and that it is cost effective. This is part of the reason state welfare departments can easily be accused of feather-bedding. In other words, if the amount spent by charities is only 80% of that spent by states, to snatch a random number out of the air, then we don't necessarily need to presume that it is not doing as good a job as a welfare state would, since charities have stronger incentives to be cost effective. So we wouldn't need to argue that charity should have to provide as much money as welfare states do.

On top of this, since charities have no guaranteed revenue, since they rely on donations, they have to work to make sure they can do the best job they can at the lowest expense to their donors. One way they do this is by helping people help themselves, for instance, giving the poor the means to work themselves out of poverty. As the Oxfam slogan said, "Give a man a fish and he'll eat for a day. Teach him to fish, and give him a rod, and he'll eat for a lifetime." It is a lot cheaper for the charity if they give a man a rod and teach him to fish than if they give him a fish everyday, and so it is a lot cheaper for donors too. This also helps give charity recipients a sense of dignity that welfare recipients often complain they do not find in the dole cues. They are supporting themselves, and so have a sense of independence.

And finally, since the charity's revenue is limited by how much its donors are willing to donate, and since it needs to be able to prove it is doing a good job in order to keep those donations coming in, charities have an incentive to make sure that those they help actually need their help. In other words they have a strong incentive to keep out welfare scroungers. States do not have such a strong incentive since they do not have as much incentive to either prove their success or to keep their costs down.

So charities are more likely to help those in need than welfare states, more likely to ensure they do so at minimal expense to those that actually fund them, and more likely to ensure their help goes to those who really need it rather than those who can do without. And all with far less a deleterious effect on the economy as state intervention would have.

But How Can We Know That Enough People Will Give to Charity?

How much aid would be forthcoming if all aid were voluntary? This is a speculative question, of course. However, there have been those who have said that philanthropy and charity are actually curtailed by the welfare state and its taxes. Abolish state welfare and drastically reduce or abolish taxes, it is said, and the well springs of philanthropy will flow once more. Milton Friedman noted:

It is noteworthy that the heyday of laissez-faire, the middle and late nineteenth century in Britain and the United States, saw an extraordinary proliferation of private eleemosary organisations and institutions. One of the major costs of the extension of governmental welfare activities has been the corresponding decline in private charitable activities.14

So there is the matter of history that a libertarian can draw upon when asked if the floodgates of charity will be opened once the state is out of the way. The fact that the existence of (big) government makes it costly for us to give to charity suggests that it is plausible to explain low levels of charitable help as being because of state intervention, and existing levels as being in spite of state intervention.

However, in the end, how much charitable aid will be forthcoming is a matter of mere speculation. The fact that people have given to charity a lot in the past is no guarantee that they will in the future, and so the advocate of the welfare state could argue that the historical information is completely beside the point when the discussion is about how much charitable aid will be provided.

So we return to the question: How do we know that plenty of people will be happy to give to charity? The answer is we don't. However, this is where we enter the interesting argument with which we concluded the section on compulsory social insurance. I'll tell you what Jan Narveson said on the matter:

Obviously a paraplegic, etc, is in no position to help himself; others are going to have to do it for him. These others will do it either voluntarily or involuntarily. If so few people want to help them that there wouldn't be a political majority to get the involuntary help on the way, then those people won't, of course, get helped by the political route. But if so many people feel the way these proponents [of compulsory aid to those who can't help themselves] fell, why wouldn't they get enough help anyway, without putting a gun to the heads of the few holdouts who don't want to? I have yet to hear even a half-decent reply to that problem, and I take that to be some evidence that there isn't one.15

David Friedman, one of the leading anarcho-capitalist theoreticians, gave precisely the same argument in his classic The Machinery of Freedom: Guide to a Radical Capitalism:

Suppose that one hundred years ago someone tried to persuade me that democratic institutions could be used to transfer money from the bulk of the population to the poor. I could have made the following reply: 'The poor, whom you wish to help, are many times outnumbered by the rest of the population, from whom you intend to take the money to help them. If the non-poor are not generous enough to give money to the poor voluntarily through private charity, what makes you think that they will be such fools as to vote to force themselves to give it?'

That would have been a crushing argument one hundred years ago.

So, in answer to the question, "But how do you know if there will be plenty of people willing to support those in need through private charity?" the answer is that we don't. However, if I am too selfish to give voluntarily to charity, then it follows that I would be too selfish to vote for someone to take my money and give it instead. And so, if we can't expect that most people will be generous enough to give voluntarily to help the poor, then we also can't expect enough people to vote for a scheme of compulsory charity instead. People cannot rationally be expected to consent to that which they would not rationally consent to. Therefore the libertarian argument wins. The libertarian position dominates the alternatives since, if enough people care about the poor enough to vote for a welfare scheme to take their money and give it to the poor, there would be enough to help the poor through charity. But if there are not enough to help the poor through charity, then how could there be the political will to arrange the welfare policy?


(1) Jan Narveson, The Libertarian Idea, Temple University Press, 1988, p. 66.

(2) Jan Narveson "Foundations of Liberty: Contract Law Vs. Government Coercion," Lecture given to the International Society for Individual Liberty, 2000

(3) Many people have a curious objection to the notion of self-ownership. They regard it as incoherent because they are of the opinion that the statement "I own myself" is somehow circular or that it raises the Cartesian paradigm of mind-body dualism - that some part of me must be separate from another part of me if I can own myself--the "I" and the "myself" are separate. (In fact, it is worse than the Cartesian paradigm in that it involves an infinite regress: If I own myself, then not only must "I" be separate from "myself," but also this thing called "I" must also be something I control, etc, etc.) However, these people are perfectly happy to use logically identical phrases in everyday language. If they really thing that "I control myself" is incoherent due to some suspected circularity, ask them if they have ever hurt themselves? Ask them if they have ever been proud of themselves? But don't get too close, they clearly never wash themselves! In fact, stay away from them completely… they are dangerous… after all, they can't control themselves!

(4) Jan Narveson, "Foundations of Liberty: Contract Law Vs. Government Coercion," Lecture given to the International Society for Individual Liberty 2000

(5) Jan Narveson, The Libertarian Idea, Temple University Press, 1988, p. 176.

(6) David Gauthier, Morals by Agreement, Oxford University Press, 1986, pp. 209-10.

(7) Robert Nozick, Anarchy, State and Utopia, Routledge, 1974, p. ix.

(8) See Ronald Dworkin 'What is Equality? Part 1: Equality of Welfare', Philosophy and Public Affairs, Vol. 10, No. 3 1981; 'What is Equality? Part 2: Equality of Resources', Philosophy and Public Affairs, Vol. 10, No. 4 1981; 'What is Equality? Part 3: The Place of Liberty', Iowa Law Review, Vol. 73, No. 1 1987.

(9) Robert Heinlein, The Moon is a Harsh Mistress, New English Library, 1967, p. 184.

(10) Gregory Sams, Uncommon Sense: The State is Out of Date, Chaos Works, 1997, pp. 163-4.

(11) Tim Evans, Socialism Without the State: The Re-Emergence of Collective Self-Help, London, Libertarian Alliance, 1994.

(12) Jan Narveson, 'Foundations of Liberty: Contract Law Vs. Government Coercion',, Lecture given to the International Society for Individual Liberty, 2000.

(13) Jonathon Wolff, Robert Nozick: Property, Justice, and the Minimal State, Polity Press, 1991, p. 12.

(14) Milton Friedman, Capitalism and Freedom, Chicago University Press, 1982, p. 190-1.

(15) Jan Narveson, 'Foundations of Liberty: Contract Law Vs. Government Coercion',, Lecture given to the International Society for Individual Liberty, 2000.

(16) David Friedman, The Machinery of Freedom: Guide to a Radical Capitalism, Open Court Publishing Company, 1989, pp. 22-23.

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