Should Governments Be Replaced by Insurance Companies?

Or, to put the question more precisely: Should the legitimate functions of a government (police, military, courts) instead be provided by insurance companies? This is what Hans-Hermann Hoppe proposes in his Democracy: The God that Failed, where he devotes a whole chapter (chapter 12) to this idea and explains in some detail how such an arrangement would work in practice.

I am skeptical to this idea; but before I vent my skepticism, I want to say the following:

Historically, governments have been lousy as regards those legitimate functions. True, there are laws against such obviously rights-violating crimes as murder and manslaughter, theft, robbery, rape, arson… you name it. Governments do try to enforce such laws. Sometimes, they even succeed. But neither can it be denied that governments have done much more to violate our rights than they have done to protect them. They rob us of much of our income and call it taxation; they erode the value of the money they don’t steal outright by inflation; they conscript us and sacrifice our very lives in wars, most of which are senseless; and you can expand that litany, if you wish. So it is no wonder that people are looking for alternatives.

Even die-hard “minarchists” (adherents of a strictly limited government) recognize that government, if not severely restricted, are the worst and most dangerous rights-violators:

Instead of being a protector of man’s rights, the government is becoming their most dangerous violator; instead of guarding freedom, the government is establishing slavery; instead of protecting men from the initiators of physical force, the government is initiating physical force and coercion in any manner and issue it pleases […] so that we are fast approaching the stage of the ultimate inversion: the stage where government is free to do anything it pleases, while the citizens may act only on permission; which is the stage of the darkest periods of human history, the stage of rule by brute force. (Ayn Rand, “The Nature of Government” in The Virtue of Selfishness; also reprinted in Capitalism: The Unknown Ideal.)

…the government’s capacity for violating freedom is incomparably greater than that of any private individual or gang whose aggression it fights. One has only to compare the Gestapo or the KGB with the Mafia to realize how much greater is the potential danger that comes from government than from private individuals. […] Thus, freedom must be defined not merely as the absence of the initiation of physical force, but, in addition, in order to highlight its most crucial aspect, the absence of the initiation of physical force by, or with the sanction of, the government. (George Reisman, Capitalism: A Treatise on Economics, p. 22.)

But if governments do not live up to the ideal of only protecting our rights and never violating them, it is no wonder that people are looking for an alternative way of organizing society.

Now to my objections to the idea of letting insurance companies take over those legitimate functions.

First of all: would insurance companies even be interested in taking over those functions?

It would mean that they would have to take over the police, the military and the courts. Each and every insurance company would have their own police force, their own armed services and their own court system. Would they want to do this? Well, I haven’t asked them, but my best guess is that they would not. (I don’t think Hans-Hermann Hoppe has asked them either; if he had, he would have mentioned it in his book.)

Secondly, to some extent insurance companies already insure us against crime. To take a drastic example, if you take out a life insurance and then get murdered, the insurance policy would fall out. This doesn’t bring you back to life, but your family and heirs are indemnified against any financial disaster your death could bring on them. – To take less drastic examples, we can insure against thefts, burglaries, robberies and the like.[1]

But this is insurance against the effects of crime, not against the crimes themselves.

It is the function of a proper police and court system to apprehend the perpetrator of crime, bring him to justice and mete out the appropriate punishment. This is not the function of insurance companies, and I doubt that they would want to make it their function.

Does Hoppe himself have an answer to those objections? I have looked in vain in his book for such an answer, and I haven’t found one. I don’t think he is aware that those objections could be raised.

But if this idea is not the way to get out of our present predicament of rights-violating governments, then what is? I won’t pretend to have a full answer to this; but I would like to quote Craig Biddle:

In addressing this question [government funding in a free society], it is important to emphasize that the elimination of taxation is not the first but the last step on the road to a fully rights-respecting society. The first steps are to educate people about the moral propriety of freedom, to cut government spending on illegitimate programs, and to begin the process of limiting government to the protection of rights.

But this is a slow process. Even the first step – educating the public and swaying the public opinion – would take a couple of generations. And the other steps, too, seem to meet with insurmountable difficulties – politicians have power and privileges, and how easy is it to make them give these up? (I would like to be more optimistic, but I cannot.)

Nevertheless, there are no short-cuts. We have to fight the uphill battle.


[1]) Quite often, such small crimes are reported to the police only because insurance companies demand that they be reported. At least here in Sweden, the police doesn’t even bother to investigate them; it is not much better in the other Scandinavian countries; I don’t know about other countries. But this mainly serves to show how bad present day governments are at their legitimate function of protecting our rights.

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One Response to Should Governments Be Replaced by Insurance Companies?

  1. Pingback: Taxing the Rich Makes Us Poorer « The House at POS Corner

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