Privateering and National Defense: Naval Warfare for Private Profit Larry J. Sechrest Independent Institute Working Paper Number 41 September 2001 Forthcoming in, The Myth of National Defense: Essays in the Theory and History of Security Production, edited by Hans-Hermann Hoppe and published by the Ludwig von Mises Institute, Auburn, AL. 100 Swan Way, Oakland, CA 94621-1428 • 510-632-1366 (cid:127) Fax: 510-568-6040 (cid:127) Email: [email protected] (cid:127) http://www.independent.org Privateering and National Defense: Naval Warfare for Private Profit Larry J. Sechrest Associate Professor of Economics Sul Ross State University Alpine, Texas 79832 (915) 837-8069 [email protected] February 2000 Revised April 2000 Introduction Hans-Hermann Hoppe has argued that “the idea of collective security is a myth that provides no justification for the modern state” and “all security is and must be private” (1999, 27). Furthermore, Hoppe makes it abundantly clear that when referring to security he means protection against not only the small-scale depredations of the common criminal but also the massive aggressions perpetrated by nation-states. The claim that all legitimate defense functions can and must be privately supplied flies in the face of certain economic doctrines that are almost universally accepted. Almost all economists declare that there are some goods or services which will be provided in suboptimal quantities--or not provided at all--by private, profit-seeking firms. These “public goods” allegedly bring benefits to all in the society, whether or not any given individual bears his or her fair share of their cost. This “free riding” by some persons diminishes the profit incentive motivating private suppliers. Therefore, to make sure that such highly-valued goods are provided, the government serves as the principal, or often the only, supplier and taxes all the citizens in order to finance the production and distribution of the good. There has been spirited debate at times about which exact goods or services should be included in the category of public goods. However, at least one is almost invariably included: national defense. Even some otherwise quite radical thinkers have found it at least plausible that national defense cannot be effectively supplied by the private sector. One might take David D. Friedman as a notable example. Friedman, despite thinking that “it may be possible to defend against foreign nations by voluntary means”, 1 nevertheless grants that tax-financed, government defense forces could prove to be the only way to confront foreign aggression (1989, 143).1 In fact, at one point he explicitly describes national defense as a public good (1989, 156). The purpose of this paper is to challenge just that sort of statement. The attack on national defense as a public good which must be provided by the state will be two- pronged. One part, the briefer of the two, will raise theoretical questions about public goods in general and national defense in particular. The second part will be devoted to a detailed survey of privateering, a form of naval warfare conducted by privately-owned ships which lasted from the twelfth century to the nineteenth century. What privateers were, how they operated, the legal customs that grew up around them, how effective they were, how profitable they were, and why they disappeared will all be addressed. The common employment of privateers during wartime will be offered as empirical evidence that defense need not be monopolized by the state. Some Theoretical Problems Public goods are commonly thought to be economic goods with peculiar, “collective” characteristics.2 If supplied at all, they will be supplied to and provide benefits for anyone and everyone--the phenomena of “joint production” and “external economies”. But what if, when governmentally-supplied, they are not even economic goods? If not, then much of the conventional analysis of public goods is misguided and inappropriate. More than a century ago Carl Menger argued that four conditions must all be met in order for any given thing to be a good: (1) there must exist some unfulfilled human need, 2 (2) the thing must possess properties which are causally related to the satisfaction of the need, (3) the economic actor must have knowledge of that causal relation, and (4) the actor must have sufficient command of the thing that he can actually employ it in satisfying the need (1976 [1871], 52). If any one of these conditions is no longer met, then the thing involved ceases to be a good. “Imaginary goods” are those where no causal relation to human needs actually exists, but some men nevertheless believe that it does---”charms, divining rods, love potions” are examples (1976 [1871], 53). According to Menger, goods become economic goods when their “available quantities are smaller than the requirements of men” (1976 [1871], 97), that is, in modern terms, when they cease to be superabundant or “free” goods. Consider armed forces controlled by the state. First, is it plausible to claim that individual citizens have command of such supposedly defensive forces in a way that satisfies--or even attempts to satisfy--those citizens’ individual preferences regarding protection? No. Even in a democratic state with universal suffrage, it is clear that military and naval decisions are usually made by a handful of men, and often in secret, with little thought of the wishes of the average citizen. In fact, sometimes those armed forces have been used against the very citizens who are taxed to pay for them.3 Second, is it really true that national defense is a collective good because it is some monolithic whole which must be supplied in toto or not at all? No, it “consists of specific resources committed in certain definite and concrete ways....A ring of defense bases around New York, for example, cuts down the amount possibly available around San Francisco” (Rothbard 1970 [1962], 885). The only things that are truly “collective” are those which are 3 superabundant, such as air, and therefore not economic goods at all (Rothbard 1970 [1962], 885). Some might respond to the last point by claiming that, despite the obviously finite magnitude of both the human and non-human resources used by government forces, nevertheless national defense does represent equal protection for all in the sense that there is a perpetual commitment to resist aggression against any part of the nation. But that is false. And the American Civil War is clear evidence of this error in reasoning. Union forces would have done nothing to protect the Confederate states if, say, the government of France had attacked them. Instead, the French would have been viewed as allies in the subjugation of the Southern “traitors”. Intervention from abroad would only have been resisted by the North if it were accompanied by a demand that the southern states, once defeated, would become a possession of that foreign power. And one cannot escape by claiming that the Confederacy was viewed as a separate nation and therefore not owed protection. The North consistently maintained that the Confederacy was an unlawful entity along the lines of a criminal gang, not a sovereign nation.4 In short, governmental protection against aggression is never guaranteed, but instead may change with political conditions. In no sense, then, does national defense necessarily imply equal protection for all areas and all persons. True defense, though its effects may be widespread, is microeconomic in nature. This is essentially the position Hoppe has recently taken. He rejects the “Hobbesian myth” of collective security provided by a sovereign state and, instead, argues that true protection against aggression can be effectively provided only by private insurers and 4 their agents. The proper boundaries of different security-risk zones are the boundaries of private property ownership, because aggression is motivated by the desire to control that which has value---persons and their property (1999, 40-41). Thus, the provision of security must not be homogenized into one product for all, but differentiated and tailored to the specific needs of specific property owners. Moreover, the incentives of private defensive agencies will be to offer ever better services at ever lower prices. In contrast, “[u]nder monopolistic auspices the price of justice and protection must rise and its quality must fall. A tax-funded protection agency is a contradiction in terms and will lead to ever more taxes and less protection” (Hoppe 1999, 33-34). Or, to use Menger’s terminology, which Hoppe does not do, governmental defense agencies actually supply “imaginary goods”. It is widely believed that, to be effective, defense must be a function of the state. However, there is no clear causal relationship between the state’s appropriation of this function and true protection. Modern states may claim to protect their citizens from aggression, but they do less and less as time goes on. Even worse, by means of oppressive laws and regulations, states systematically expropriate property and deprive their own citizens of “the very foundation of all protection: economic independence, financial strength, and personal wealth” (Hoppe 1999, 31). Much of what is done in the name of “public safety” is, in reality, endangering and impoverishing the public. For many years, lighthouses were cited right along with national defense as an allegedly clear-cut example of a public good that required the involvement of government. Then Ronald H. Coase (1974) took the time to investigate the actual 5 history of lighthouse operation in that nation where maritime issues have probably played a greater role than in any other---Great Britain. He found that the building and operating of lighthouses by private firms was quite common. By 1820, for example, 34 of the 46 lighthouses then in operation had been built by private individuals (Coase 1974, 365). Owners of these structures gained their revenue from fees paid by shipowners, the beneficiaries of the service. Nevertheless, by 1842 Parliament had eliminated all private ownership of lighthouses. Was this because private lighthouses were badly run? No. This change was effected due to lobbying from the shipowners, who hoped that the fees they paid would be reduced or eliminated if the government ran the lighthouses.5 Coase concludes that “economists should not use the lighthouse as an example of a service which could only be provided by the government” (1974, 376). If the lighthouse is not, in fact, a public good, might the same be true of national defense? This essay has already provided some theoretical reasons for thinking so. The remainder of this effort will, in emulation of Coase, explore the historical evidence on privateering, a form of maritime national defense provided by profit-seeking private firms. Basics of Privateering The history of privateers goes back to the early Middle Ages. Originally, it was a method by which a citizen of one nation who had been victimized by a citizen of another nation could achieve restitution for his losses (Petrie 1999, 2-3). With a permit issued by his government, the offended party could arm one of his ships and go searching for merchant ships flying the flag of the perpetrator’s nation. If he encountered such a vessel 6 and was able to subdue her, he could then sell the ship and its cargo at auction and pocket the proceeds. The first permit of this kind, which was known as a “letter of marque and reprisal” throughout the several centuries of privateering activity, was issued in Tuscany in the twelfth century. By the end of the fourteenth century they were common throughout the Mediterranean. The use of letters of marque and reprisal in England dates from the year 1243 (Garitee 1977, 3-4). Although begun as a system for effecting private restitution on the high seas, and thus employed whether or not a state of war existed between the two nations, privateering evolved into an instrument of war. By the nineteenth century letters of marque “were issued only in time of war to supplement the public vessels of the respective navies” (emphasis in original)(Petrie 1999, 3). Many naval historians have downplayed the role of privateers in favor of the deeds of public navies (Mahan 1965 [1890], 132). Nevertheless, one should certainly not infer that privateers played only a trivial role during wartime. For example, Elizabethan England was “almost totally dependent upon the private initiative and individual enterprise of its privateering establishment” (Garitee 1977, 5). Indeed, the sheer magnitude of such activity was remarkable. The American colonies of Britain commissioned 113 privateers during King George’s War of 1744-1748 and 400-500 during the Seven Years’ War of 1756-1763 (Garitee 1977, 7-8). During the American Revolution both sides freely employed privateers. Despite having a large public navy, the British commissioned at least 700 such vessels, ninety-four from Liverpool alone (Williams 1966 [1897], 257, 667-69); while the American secessionists 6 sent about 800 to sea in search of prizes (Stivers 1975, 29). The War of 1812 saw 526 American vessels 7 commissioned as privateers, although only about half that number actually went to sea (Kert 1997, 78, 89). Between July 1812 and January 1815, even the small maritime communities in the Canadian provinces of New Brunswick and Nova Scotia contributed forty-seven privateers to the war effort, but on the side of the British of course (Kert 1997, 78). Thomas Jefferson articulated the importance of privateers quite well when, in 1812, he declared that “every possible encouragement should be given to privateering in time of war with a commercial nation...Our national ships are too few in number...to retaliate the acts of the enemy...by licensing private armed vessels, the whole naval force of the nation is truly brought to bear on the foe” (Williams 1966 [1897], 459). Historian Faye M. Kert offers the judgment that “without the presence of the American privateers in the Revolutionary War and the War of 1812, the United States would never have been able to hold off the British Navy” (1997, 81). It will surprise those who are enamored of the