Why isn't the military privately funded?
It seems pretty obvious. Pretty much everyone in any country would agree that if you have aggressive neighbors, having a military is a smart investment. And if everyone agrees on something being a good investment, and the free market loves good investments, why doesn't the free market yield defensive military services?
Economics has an explanation for this: The Free Rider problem. It's a simple concept that can affect a lot of public goods.
Here's Fred. He's a free market capitalist.
Fred is a pretty smart guy and he follows his market tendencies to maximize his benefit. Free market capitalism has been pretty good to Fred. He studied hard, made a good living, sent his kids to private universities, and bought that vacation home in Lake Tahoe for market price.
Fred's really grateful that he doesn't have to worry about Canada invading. His country has a strong army. But this army is a little different than most armies. Fred's country's army is all funded by private citizens. They all voluntarily pay a fee of $50/year to fund the army.
But Free-market Fred had a realization one day. Fred benefits from the military because his home and his livelihood are protected. But Fred also realizes that if he doesn't pay the military to protect him... what's going to happen?
Pretty much nothing. The military has PLENTY of money. They get $50 from every person in the country. How is Fred's $50 going to make any difference? It's such a small amount and he could use that money to take Mrs. Fred out to a nice anniversary dinner. And so Fred stops paying. He still gets all the benefit of a functioning military but doesn't have to pay anything because this is a free market and if Fred doesn't want to pay for something he doesn't have to.
The reason people in this example are funding a military is because the existence of the military creates a public good. A public good is something that everyone in a society benefits from no matter how much they pay for it (sometimes nothing). In this case, the public good is peace and security.
Public goods are defined by two main characteristics. They are
(a) Non-excludable: I cannot stop you from enjoying the benefits of a public good, even if you haven't paid for them.
(b) Non-rival: My enjoyment of the benefits of a public good do not stop you from enjoying them as well.
So Fred just became a free-rider because he is enjoying a public good and not paying for it. Ideally the free market would then transfer the risks and downside of not paying for the military to Fred, but it can't because peace and stability are non-excludable. We can't stop Fred from enjoying the peace that the rest of us are all paying for, and we can't let Canada invade only Fred's home but no one else's.
As soon as Fred's neighbors see that Fred is benefiting from peace and not paying for it, they realize that they're all being played for fools. So they stop paying too. And then the whole system falls apart and the military has no money to defend the population. The public good goes away, Canada invades, and suddenly the roads are running brown with maple syrup.
The way society has historically fixed this is through coercion. A government can coerce its citizens to pay for something by levying taxes and using the threat of force or imprisonment in the case of nonpayment (two forces which are non-existent in a completely free market system). The military is the most obvious and well-cited example of a necessary public good and the free rider-problem potentially occurring, but there are others. Before you look below, which ones can you think of?
Some public goods:
- peace
- clean air
- clean water
- low crime rates
- a predictable, stable currency
- a well-educated population
- sunshine
Free-rider opportunities:
- not contributing to a police force,
- refusing to cut carbon emissions and pollution despite others doing so
- people taking advantage of herd immunity when they can be vaccinated
- any donation based entertainment (museum admission, album purchase, live band, public radio, etc) in which an audience member does not contribute.
- that time you pretended to be lifting a heavy couch, but the other three people were carrying all of the weight.
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