This article was published in the Spring 1996 issue of Formulations
by the Free Nation Foundation
Can a Stateless Society Survive?
by Bruce L. Benson

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I. Governance to Support Cooperation Or Takings?
II. Internal Factors That Prevent the Development of Extortionist Institutions
III. Invasion and Subjugation: The Development of States
IV. Conclusions

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Competition over the use of scarce resources is inevitable (Hume 1751; Benson 1994b, 1995b, 1996). Competition will take violent forms in the absence of rules and institutions of governance to establish and induce recognition of obligation to respect property rights, resolve disputes over those rights by non-violent means, and facilitate changes in those rules as conditions change. It is widely believed that governance is impossible without a concentration of power in the coercive in institutions that typify nation-states (e.g., one widely used definition of a state is that it is "a monopoly in coercion"), but this is clearly not true. The fact that institutions of governance evolve in a stateless society (e.g., ordered anarchy such as that which would characterize a truly "free nation") has been demonstrated over and over again, throughout history.1 But most examples of geographically bounded stateless societies have given way to states.2 Does this mean that the institutions of governance in stateless societies are inevitably unstable that states inevitably arise? This is the question considered here. The answer proposed, somewhat tentatively, is that: (a) the internal institutions of governance in stateless societies are inherently stable; and (b) while historically, stateless societies have been unable to stand against invaders who then establish state institutions, there are some reasons for expecting that this threat can also be mitigated in the future.

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I. Governance to Support Cooperation Or Takings?

One difference between a stateless and state-based society is that the governance in the former evolves from the bottom up, primarily through voluntary agreements, while governance in the later involves top-down coercive command. Perhaps an even more important difference, however, is in the purpose of the rules themselves. A primary motivation for developing rules and institutions, whether they are accepted voluntarily or out of fear, is that individuals are attempting to find ways to expand personal wealth in the face of scarcity, but there are two ways that an individual can expand personal wealth. One is through what Oppenheimer (1908) has labeled the "economic" means: cooperative voluntary interaction, including team production through the division of labor, and voluntary exchange. The second involves taking wealth produced by others through the use of force and/or guile: what Oppenheimer calls the "political" means. Rules and institutions can be developed to facilitate either of these means of wealth enhancement.

Governance to Support the Economic Means

Because the underlying source of conflict is scarcity, the development of cooperation requires establishing rules of behavior that focus on property rights (Benson 1994b). Security of each individual's property claims can be increased by agreeing to respect property rights of others in the cooperative cluster, given that other individuals cooperate by doing the same. Indeed, rules that arise through cooperative governance create a system of evolving private property rights (Rider 1993; Benson 1994b, 1996). Wealth is enhanced for everyone involved in such trust relationships by making property relatively more private and relatively more secure. As this occurs, individual's time horizons are lengthened, they can plan better, and resources can be allocated in ways that are more likely to maximize the potential for wealth creation over the long run. This provides a powerful motivation for cooperation in governance, of course.3 Such cooperation arises when the opportunity cost of investing in the economic means of wealth creation are low, relative to investments in violence to generate wealth transfers (Umbeck 1981; Skapaderas 1992; Rider 1993; Benson 1994b, 1996).

Governance to Support the Political Means

Someone who has a relatively low opportunity cost for violence (e.g., a high opportunity cost for productive activities) may choose Oppenheimer's political means of wealth enhancement. This may involve one-shot efforts such as theft and pillage, but an alternative is the establishment of institutions of extortion to subjugate and extract tribute from a relatively productive individual or group. This means that a productive individual does not have property rights to all of the fruits of his labor. Tribute is "extorted" as the payment is for "protection" from the individual receiving the payment, rather than from other threats. Nonetheless, the subjugated individual chooses to yield to such extortion because it produces greater personal wealth than is expected through violent conflict (e.g., perhaps some retention of the wealth generated through the economic means, since an extortionist must allow some, albeit relatively insecure, private property rights to create incentives for production of a steady stream of wealth), given a comparative disadvantage in violence. As explained in Benson (1996), such an extortion racket is likely to evolve as the extortionist establishes an organization employing other specialists in violence (strong-arm enforcers, police, military personnel), buys off other potentially powerful rivals by directing some wealth transfers to them and by recognizing and protecting some of their property rights (e.g., the extortion racket turns into a protection racket which combines extorting from some and protecting others), and so on. Such organized extortion can evolve into a state if it gains sufficient control over a geographic area (Oppenheimer 1908). How might such control be obtained?

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II. Internal Factors That Prevent the Development of Extortionist Institutions

First let us consider the potential for an extortionist to arise within and gain control of an existing voluntary group (a stateless society). Note that for most members at least, entry into such groups is voluntary because everyone expects to be better off through cooperation than they anticipated being through the alternative - using violence to claim property and expand wealth. Thus, turning to extortion after first adopting cooperative behavior would have to involve some change in incentives. Many forces beyond the control of individuals can lead to changes in the opportunity costs, of course. As a cooperative group develops and property rights are increasingly privatized, for instance, some individuals are likely to gain considerable wealth while others, due to their lack of skills, mistakes, bad luck, the harshness and uncertainty of the weather, natural disasters, man-made disasters (e.g., fires), or disease, may not enjoy the same kinds of gains. Thus, a class of relatively poor people can be expected to develop even in a free nation, and their opportunity cost of living up to promises to respect others' property rights will be relatively low. That is, they will have strong incentives to engage in theft, extortion, or other takings. Indeed, without help, they could be forced into such activities to survive. But while there are reasons to expect theft and efforts to extort even in a voluntary society, there are also a number of reasons to expect that such events will not culminate in the internal rise to power of an extortionist.

First, institutions develop within cooperative groups to sanction non-cooperative behavior. Indeed, a thief or extortionist known to the voluntary group will be accused of wrongdoing, tried before an arbitrator or mediator, and if found guilty, sentenced to pay restitution to cover damages.4 Refusal to accept a fair trial, or to pay trial-determined restitution will lead to social ostracism. Furthermore, the incentives of members of such a group to cooperate in pursuit and prosecution are much stronger than the similar incentives under the institutions of the state (Benson 1994a). Therefore, long before an individual (or even a gang) would be able to amass sufficient power to call himself a "god-father" or "king" and develop institutions of governance that impose extortionary rules on other members of a cooperative group, he would be cast out of the group.

Second, groups are likely to develop institutions that reduce individuals' incentives to turn to extortion and/or theft in the first place. Since some changes in the opportunity cost of violence are predictable, for instance, a cooperative group can establish mutual insurance arrangements against these probabilities, thereby encouraging people to continue to recognize the cooperatively-produced property rights system even when their circumstances change. Johnsen's (1986) analysis of the potlatch system of the Southern Kwakiutl Indians provides one of many examples. Johnsen (1986: 42) explains that "In order to provide the incentives of would-be encroachers to recognize exclusive property rights, and thus to prevent violence, those Kwakiutl kinship groups whose fishing seasons were relatively successful transferred wealth through the potlatch system to those groups whose seasons were not successful.... Although potlatching thereby served as a form of insurance, the relevant constraint in its adoption and survival was the cost of enforcing exclusive property rights rather than simple risk aversion." In effect, a Kwakiutl group with a poor harvest had property rights to some portion of the harvest of a relatively successful group. If the flow of payments is always in the same direction it is analogous to a tax induced by the threat of violence, of course, but in fact, such transfers are often expected to involve reciprocities. One Kwakiutl kinship group may have a poor harvest of salmon in one year, and therefore receive a transfer, but the next year the other group could have the poor harvest so the transfer goes in the opposite direction. Thus, mutual insurance is a more appropriate description.

Individuals need not actually anticipate reciprocal treatment in the future to voluntarily establish a mutual insurance arrangement. Some individuals may not expect to ever become destitute themselves, for instance, but if they expect that some others will, they recognize that the transactions cost of maintaining property rights could rise in the future. After all, property rights will remain relatively insecure in the face of continual potential for thievery or extortion due to individuals' opportunity costs changing, and besides, trials are costly. Furthermore, ostracism or violent eradication of the destitute class would involve a never-ending "war" between the wealthy and the poor, so a peaceful solution to the problem becomes desirable. A mutual insurance arrangement, backed by ostracism of non-contributing free riders, may therefore be a low cost alternative (Solvason 1991: 72). Solvason (1991) discusses such an arrangement in medieval Iceland [a stateless society governed by a well developed system of law (Friedman 1979; Solvason 1991)] that provided for those who suffered due to uncontrollable events. The members of voluntary neighborhood groups helped rebuild and restore property destroyed by fire, orphans or individuals who were destitute were taken in by others who were able to provide for them, those without property but able to work were given work by those wealthy enough to employ others' labor, and revenues were even collected to provide for the poor directly. Such an arrangement has the ring of "charity" of course, but there is also a very straight-forward self-interest explanation for the development of such altruistic behavior: property rights are made more secure.5

Several other developments within voluntary groups could also be cited that tend to prevent the development of an extortionist system of governance. The fact is that institutions to establish and secure private property rights within a stateless society, including cooperative policing, participatory dispute resolution, restitution, ostracism, freedom of contract, mutual insurance, and so on, are apparently very effective in this regard. The internal dynamics of a free nation appear to be quite stable (Benson 1994b). Indeed, there are few if any verifiable examples of coercive institutions of government evolving to set and enforce extortionary rules within cooperative groups. Instead, as Hume (1739: 540) explained over two and a half centuries ago, coercive institutions of government "arise from quarrels, not among men of the same society, but among men of different societies." If one group invades another's territory with the intention of subjecting the other group in order to collect a time-series of extortion payments, the invaders will have to impose rules for the continual redistribution of wealth from those who produce to those in power, and establish institutions to carry out the redistribution. This is why coercive institutions of states are formed in the first place [e.g., see Blair (1956) or Benson (1990) regarding the development of the Anglo-Saxon Kingdom]. The real threat to a stateless society is the external threat of invasion then, rather than any internal process of concentration of power.

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III. Invasion and Subjugation: The Development of States

No group is likely to develop its rules and institutions in complete isolation from other groups. Thus, inter-group interactions become probable, including legal emulation, and competition for membership, since a group with the "best" system of governance and the largest membership has the greatest opportunity for mutually beneficial interaction. Furthermore, a group does not necessarily have to expand to extend opportunities for beneficial interaction. Indeed, if individuals want to interact, but only on some dimensions, or if they want to maintain different sets of rules for different dimensions of interaction, then parallel "localized" mutual support groups may be maintained while a "second order of clustering" (Vanberg and Buchanan 1990, p. 189) is established, facilitating a relatively limited scope for interaction. Networks of institutions to facilitate cooperation between members of different groups can evolve. There are many historical examples of dispute resolution hierarchies, bonding or surety arrangements, and other inter-group institutions that expand the potential for trade and other forms of voluntary interaction (Benson 1992b, 1995b; Pospisil 1971).

Another potential form of inter-group "interaction" also arises, of course. If one group has accumulated a lot of wealth and/or is very productive, members of another group may decide to employ violence in order to take the wealth or to extort part of the stream of income from productive activity. Indeed, many stateless groups that have established and enforced private property rights within their own territories have simultaneously been in a state of war with other groups, either as invaders or defenders (Bailey 1992). One function of cooperative groups in maintaining secure private property rights is defense against invaders, of course, but if the invaders have a lower opportunity cost of violence, the defenders may choose to surrender. Historically, this has been the process through which states have been formed [e.g., see Blair (1956)]. Can this be prevented?

One potential function of cooperative clusters is that of defense against invaders (Jasay 1995, p. 11). Indeed, as Jasay (1995) forcefully explains, while the typical Hobbesian assumption is that a "confederacy" is formed to invade, there are also strong incentives to form defensive confederacies. He poses the following challenge to theorists: "incentives work both ways, they may attract coalitions on both sides of a conflict, and the tacit supposition of an asymmetry, giving a natural advantage to the attacking coalition, must be justified. Failing that, it must be rejected." Historically, however, invaders seem to ultimately win, subjugating those who were members of a stateless society. Why?

There clearly are limits to how extensive a network of cooperation can be (Vanberg and Buchanan 1990, pp. 189-190), of course, but the limits are not fixed. They depend on the relative costs and benefits of interactions with and information about other people and groups. As economic conditions change the costs and benefits of information can change, so new relationships may evolve over time. Certainly, a growing threat of invasion raises the benefits of cooperative defense, so a defensive confederacy might expand. Therefore, as Jasay suggested, the transactions costs of forming a defensive confederacy do not appear to be any higher than the transactions costs of forming an offensive one, ceteris paribus. Unfortunately, at least historically, the ceteris paribus has not held. Those who choose to be invaders have different opportunity costs for violence than those who are defenders. This is a key to Oppenheimer's (1908) explanation of state formation. Invaders tend to be people who control relatively unproductive resources and therefore, have strong incentives to invest in violence as a means of wealth enhancement. Defenders have something of value to defend, of course, but the more time and effort they invest in defense the less time and effort they have to invest in production. Their opportunity costs of investing in violence are high, and at some point they may simply choose to acquiesce, yielding extortion payments to the invaders in exchange for the opportunity to produce. Just like the merchant who is better off paying the mafia for "protection" than he is resisting, the relatively productive defenders of the fertile valleys ultimately yield to the invaders from the mountains rather than investing all of their time and effort in defense, and a state is eventually formed (Oppenheimer 1908). This leads to a pretty pessimistic prognosis for survival of a free nation, of course. However, there are at least two factors that may temper this pessimism.

First, while Oppenheimer's story is quite compelling as an explanation of the historical development of the state, it does require that the important productive assets are immobile: the defenders' interests are tied to the fertile valley, for instance. And indeed, historically, most wealth has been tied to land. However, over the last century or more, this fact has changed dramatically. While land certainly remains an important source of wealth in much of the world, it is increasingly less important. Wealth is increasingly tied to capital, which is increasingly mobile. If the defenders can escape and take much of their wealth with them, the expected gains from invasion are reduced. Note what has been happening to Hong Kong as the date for China's take-over of the city approaches, for instance. Much of the city's wealth has been relocated to Vancouver, San Francisco, Singapore, Sydney, and elsewhere, as entrepreneurs and capital owners seek relatively free societies where their property rights will be more secure. Furthermore, voluntary institutions of governance for groups bounded by non-geographical characteristics are clearly less susceptible to state takeover. The institutions of the international business community that govern international trade remain relatively free from state controls even today (Benson 1989a, 1992b), for instance. Indeed, some economists are predicting the end of the nation state as we know it, because of the increasing power of the market and mobility of capital (Ohmae 1995).6

The second, even more tentative factor that might temper the pessimistic outlook suggested by history is that the technology of warfare has been changing. The tremendous scale economies that supported the growth of empires during the last few centuries have been unable to maintain those empires. Indeed, the successful resistance against super-power invasions by the Viet Cong and the Afghans, suggests that powerful invaders can be defeated by an armed and determined confederation of local "militia." As the benefits of invasion have fallen with the increasing mobility of wealth, the cost of invasion appears to be rising with the potential adoption small local resistance efforts of the tools of violence developed by the nation-states' military-industrial complexes. Beyond that, today, many statists shudder at the thought of a small "terrorist" group building or stealing some of the even more powerful weapons developed by states, because of the truly devastating impact such a small organization might have, but the fact is that such technology can also be used by free individuals in a stateless free nation to defend against invading armies. The leaders of extortionist states might be effectively deterred by the fear of such weapons in the hands of freemen.7

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IV. Conclusions

A free nation will become a relatively wealthy nation. Others who observe this wealth will have strong incentives to attempt to take it. Therefore, the bottom line seems to be that if a free nation is to survive, its members must be willing to fight to maintain it, just as Thomas Jefferson explained a few centuries ago. That willingness, as evidenced by investments in effective tools for violent defense against invaders, both by individuals and by voluntary confederations, might be sufficient to deter invasions. It may even convince outsiders that a better way to enhance their own wealth is to emulate the institutions of the free nation and produce wealth directly. History does not support such a prediction, but perhaps conditions will change or have changed sufficiently so that history will not repeat itself. D


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1 For a few examples, see Peden (1971), Friedman (1979), Umbeck (1981), Solvason (1991), Bailey (1992), or Benson (1989a, 1989b, 1990, 1991a, 1991b, 1992a, 1992b, 1994a, 1995a).

2 Institutions of governance that are not associated with geographically bounded groups are clearly less susceptible to state takeover. Consider, for example, the institutions governing international trade, which remain relatively free from state controls even today (Benson 1989a, 1992b).

3 Indeed, as Buchanan (1993: 1) explains, the most widely offered "defense" of private property is this "Aristotelian" one: that private property instills incentives that lead to greater efficiency in production. Buchanan (1993: 2) forcefully argues for a second, complementary defense, however: that private property also allows for "maximal independence" or individual liberty. Indeed, private property is the social form that makes individual liberty possible, so roughly speaking, one might say that liberty equals private property.

4 See the references in note 1 for evidence, and Benson (1994b, 1996) for theoretical explanations of the development of such institutions.

5 If the same charitable institutions can be explained by assuming unrestricted altruism or personal self-interest, does it really matter what the true motivation is? Yes. After all, if self interest in preserving a private property arrangement is even a significant part of the motivation for voluntary wealth transfers, then it follows that preventing the evolution of or undermining the stability of private property rights will also prevent the evolution of or undermine voluntary charity. A theory of charity based on an assumption of altruism alone implies that the institutional environment does not matter.

6 This does not necessarily mean the end of the state, however. Extortionist institutions may collapse, as they have in Eastern Europe, but they may also collude to form bigger states, as they have in Western Europe with the formation of the EEC. Cartels, even among governments, are difficult to maintain, however, so it remains to be seen whether the mega-states can survive.

7 While I am certainly not advocating the use of such weapons to over throw the state, I am reminded of one of my favorite science fiction stories Vernor Vinge's (1991) "The Ungoverned". While the free individuals in his story, who were facing an apparently overwhelming force of an invading state's army, did employ some fictional technology in their defense, the most compelling part of the story (along with the well developed presentation of the principles of a free market in competitive/contracting defense services) involved a single free farmer who, after his conventional defenses were overrun, went deep underground and then exploded a small nuclear device in the air above the invading forces, wiping out a large number of army personnel. The potential of untold numbers of other freemen with similar defenses helped convince the statists that the potential costs of invading the free territory were not worth the gains, so they declared victory and retreated.

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____. "An Evolutionary Contractarian View of Primitive Law: The Institutions and Incentives Arising Under Customary American Indian Law," Review of Austrian Economics 5 (1991): 65-89.a

____. "Reciprocal Exchange as the Basis for Recognition of Law: Examples from American History," Journal of Libertarian Studies 10 (Fall 1991): 53-82.b

____. "The Development of Criminal Law and Its Enforcement: Public Interest or Political Transfers," Journal des Economistes et des Etudes Humaines 3 (March 1992): 79-108.a

____. "Customary Law as a Social Contract: International Commercial Law," Constitutional Political Economy 2 (Winter 1992): 1-27.b

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____. "Emerging From the Hobbesian Jungle: Might Takes and Makes Rights," Constitutional Political Economy 5 (Spring/Summer 1994): 129-158.b

____. "An Exploration of the Impact of Modern Arbitration Statutes on the Development of Arbitration in the United States," Journal of Law, Economics, & Organization 11 (October 1995): 479-501.a

____. "Competition Among Legal Institutions: Implications for the Evolution of Law," in Competition Among Institutions, Luden Gerken, ed. (London: Macmillan Press, 1995), 153-175.b

____. "Endogenous Morality," Florida State University Working Paper, February 1996.

Blair, Peter Hunter. An Introduction to Anglo-Saxon England (Cambridge, England: Cambridge University Press, 1956).

Buchanan, James M. Property as a Guarantor of Liberty (Aldershot, England: Edward Elgar, 1993).

Friedman, David. "Private Creation and Enforcement of Law: A Historical Case," Journal of Legal Studies 8 (1979): 399-415.

Hume, David. A Treatise of Human Nature, 2nd ed., Nidditch, P. H., ed. (Oxford: Clarendon Press, 1739 [1978]).

____. An Inquiry Concerning the Principles of Morals, Hendel, Charles W., ed. (Indianapolis: Bobbs-Merrill Educational Publishing, 1751 [1957]).

Jasay, Anthony de. "Values and the Social Order," International Journal on the Unity of Sciences 5 (1992): 361-390 [also in Values and the Social Order, Volume I, Radnitzky, Gerard, and Bouillon, Hardy, eds., Avebury, Aldershot, England].

____. "Conventions: Some Thoughts on the Economics of Ordered Anarchy," Lectiones Jenenses (1995 mimeo).

Johnsen, D. Bruce. "The Formation and Protection of Property Rights Among the Southern Kwakiutl Indians," Journal of Legal Studies 15 (1986): 41-68.

Ohmae, Kenichi. The End of the Nation State (New York: The Free Press, 1995).

Oppenheimer, Franz. The State: Its History and Development Viewed Sociologically , translated by John M. Gitterman, (Indianapolis: Bobbs-Merrill Co., 1908 [1914]).

Rider, Robert. "War Pillage, and Markets," Public Choice 75 (1993): 149-156.

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Solvason, Birgir Thor Runolfsson. "Ordered Anarchy, State, and Rent-Seeking: The Icelandic Commonwealth, 930-1264," George Mason University, Ph.D. Dissertation, 1991.

Umbeck, John. "Might Makes Right: A Theory of the Foundation and Initial Distribution of Property Rights," Economic Inquiry 19 (1981): 38-59.

Vanberg, Viktor J. and Buchanan, James M. "Rational Choice and Moral Order," in From Political Economy to Economics And Back?, Nichols, James H., Jr. and Wright, Colin, eds. (San Francisco: Institute for Contemporary Studies, 1990).

Vinge, Vernor. "The Ungoverned" in Across Realtime (Riverdale, N.Y.: Baen Publishing Enterprises, 1991).

Bruce Benson is Distinguished Research Professor in the Department of Economics at Florida State University, and author of The Enterprise of Law: Justice Without the State, 1990.

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