Have any capitalist libertarians asked if the free market destroys itself (due to the efficiency of organised crime)?

Question

I am aware of, though not read in, the most influential capitalist libertarian thinkers (Hayek, Friedman, Nozick, Rand, etc). As far as I understand it, their general point is that an unrestricted free market promotes (or is required for) individual freedom, because it is more efficient at meeting human needs and rewarding effort.

However, I have been increasingly concerned, examining historical events and watching the spread of corruption and crime in recent years, about a simple question... which, as far as I know (could be wrong), runs contrary to capitalist libertarian and Marxist conclusions.

I am reading an article on the meth epidemic in the USA, from this month's issue of The Atlantic. It's a good read, and one issue raised is that innovations in the production of crystal methamphetamine have vastly increased access to a more dangerous variant of the drug. Essentially: the efficiency of the unregulated criminal free market is harming society in profound ways few people anticipated.

Capitalist libertarians all seem to assume market efficiency is naturally constructive, but have any of them argued that it may be naturally destructive? To be clear: I am not arguing from a Marxist position, where it is assumed that market efficiencies lead to increasing inequalities and monopolies, into an almost feudal conclusion of ownership.

Question:

1) Does the efficiency of the free market, with criminal enterprise operating internationally, undermine the state's ability to enforce rule of law? Thus, leading to the disintegration of the democratic-capitalist-liberal system, resulting in chaotic failed states?

2) Specifically: Have any big name libertarians or economists discussed the question of whether market efficiency favours criminal activity, and thus if the free market undermines itself? Or any similar subject, regarding the relationship between legal and illegal marketplaces.

I would like references to books or essays for further reading please.

EDIT: To clarify a query made by 'Joe W'; less legal restriction isn't the same as no legal restriction. E.g. Hayek and Friedman as far as I know weren't advocating for an absence of government or law enforcement.

Another point which has been raised is the contradiction of terms: 'criminal free market'. Legal and illegal marketplaces exist simultaneously and interact with each other, and the latter operate less according to legal/cultural constraints and more according to pure supply and demand. In that case it is very important to understand what the big named libertarians and economists have said on this relationship and the relative efficiencies of legal and illegal marketplaces.

Answer 1

The central tenet of Right-Libertarianism is that free markets are the optimal solution to any economic, social, or political issue. The idea that a free market might be destructive is unthinkable within that context; the immediate response to any such question is that the market will adjust so long as government doesn't interfere. You will not find many Libertarian intellectuals discussing the idea, any more than you are likely to find Christian theologians entertaining the idea that God is actually evil, or White Supremacists considering the possibility that whites might actually be an inferior race.

The issue of drug use is a good example. The mainstream Libertarian position is that drug use is victimless — people choose to use freely, without compulsion — and so there should be no laws regulating it. You'll see arguments of this sort (chosen from a quick google search), which hold that drug use is unalterable aspect of human nature. Legalizing it might increase drug use, but will lower prices (through free market competition), lower the incidence of violence against person or property (a function of drug users desperate to pay exorbitant costs), and shift the burden of assisting and controlling drug-users to the private sector. Occasionally you'll find counter opinions like this one, but note that the argument being made isn't that drug use is morally bad, but that drug use interferes with a person's ability to make free, rational choices: a capacity needed within free markets, which ought to be protected as a fundamental right.

Answer 2

Of the authors mentioned in the question:

• I would discard Rand - a novelist of the 1930's modernist style (finding success slightly later) who's work did double duty as an anti-communist propaganda, with a good helping of fascist undertones
• I would examine Hayek and Friedman for their profound historical influence, a direct line to Reagan and Thatcher (and as you might find if digging deeper, also Bill Clinton and Tony Blair). However in my view they had enough of an anti-communist, anti-union political agenda that I would question any theory coming from them as functionally an apologia for the moneyed classes of the US.
• I would look to Nozick for theoretical rigor, which is pure enough to be examined in isolation. He also writes with powerfully direct argumentation, and a relatively easy read (especially compared to Rawls, the usual contrast from the side which represents the US version of social democracy... however IMO the approach of Rawls is far more subtle, able to be rooted in the real world, and able to provide an answer for the question of extreme accumulation of power). Take as a huge disclaimer that I'm not an economist and was exposed to this at an intro level a couple decades ago, and have looked at it with nothing but a critical point of view at all times.

As far as capitalism destroying itself -- that was very much on the mind of 20th century capitalists, and the academics we are talking about here. In my view, capitalism destroying itself meant a very specific thing to the proto-neoliberals in the Mont Pelerin scene, which I'd say was the headwater of US neo-liberalism, and is indispensible for historical context.

The great danger of capitalism which was of concern to this group, clearly visible in the modernist period, was that capitalism seemed to naturally give birth to social democracy, syndicalism, and even communism.

While Malthusian thinkers were present at all times, the idea of environmental limits and the problem of destructive externalities was not considered alarming in the same way.

The end state toward which MPS, the Chicago School, and their many present-day progeny worked (with various degrees of how directly they articulated this, or believed it in the cynical way in which I am describing it), was to defend democratic societies from voting for social democrats of the FDR type, or even actual socialists, who would then proceed to transfer power and wealth away from the capitalist class.

Answer 3

Does the efficiency of the free market, with criminal enterprise operating internationally, undermine the state's ability to enforce the rule of law? Thus, leading to the disintegration of the democratic-capitalist-liberal system, resulting in chaotic failed states?

Libertarians define a free market as being free form initiation of violence or coersion, so a market that contains criminal activity would not be considered free. Libertarians also see any violent market interference as inheretely criminal, so when evaluating a conflict between the state and criminal organizations, libertarians tend to treat the conflict as a conflict between criminal organizations.

The market will, in theory, benefit the criminal that is most aligned to the demands of the non criminal customer. For example, if there is a prohibition of alchohol made by the state, and the criminal organization manages to sell it, the market will ensure the criminals will receive massive profits.

This does not happen, however, if the demmand is criminal. For example, if there is a demmand for murders, there is a much higher demand for no murders, so the market will tend to work against the criminal in this area.

But to answer your question more directly, if a state creates a bunch of arbitrary laws and start treating inocent people as criminals, the market will empower those who defy those laws. If the state does that too much, they might indeed lead to a full governmental collapse.

Democracies, however, have a natural fallback mechanism that help prevent this complete collapse. If a politician is hampering the market too much and empowering criminal organizations too much, it is common for him to be replaced as a way to avoid total collapse.

Other things to consider are the under the hood agreements between the governmenta and the criminal organizations, and the possibility of criminal organization members to be elected.

Specifically: Have any big-name libertarians or economists discussed whether market efficiency favors criminal activity, and thus if the free market undermines itself? Or any similar subject regarding the relationship between legal and illegal marketplaces.

• The Ethics of Liberty from Murray Rothbard
• Man, Economy, and State with Power and Market from Murray Rothbard
• Democracy: The God That Failed from Hans-Hermann Hoppe