The Privatization of Roads and Highways - Ludwig von Mises Institute

Public Goods and Externalities: The Case of Roads 121
rest of the country would fall somewhere in between these two
extremes.
One manner of internalization of the externalities, on what
we might call the “macro level,” would be the use of restrictive
covenants. People could simply refuse to sell their homes (or rent
their apartments) to those who would not agree, and also hold all
future owners to agree, to a contract calling for payments to a
defense company. Although there might be a few holdouts and
recluses, most people in these areas would soon find it in their
interest to subscribe. And in the same manner, the areas of the
country with a less developed preference for such services would
tend to have commensurately less defense provision.
On what might be called the “micro level,” the defense company
might at some point announce that those who had not paid
for service would no longer be protected by its personnel. The
company would, of course, continue to protect its own dues-paying
members, and indiscriminate attacks on the neighborhood
would be repelled. Any attacks which interfered with paying
customers would be liable to retaliation from the defense company.
But, of course, an attack pinpointed against nonpayers,
which did not at all interfere with customers, would be ignored
by the company. Given these conditions, the provision of defense
service loses most of its qualities of being a public good. 33 People
who paid for the service would receive it; others would not. As
in so many other cases, the notion of a collective or public good
is an illusion created by the absence of an actual market. Effective
operation of the market depends on excludability. But the important
point is that excludability is not an inherent characteristic of
goods. Rather, the ability to exclude nonpayers from benefits is
33 This is not meant as an exhaustive brief for a free market in defense
services. Such treatment would take us far beyond the scope of this paper,
but the interested reader can consult Murray N. Rothbard, For a New Liberty
(New York: Macmillan, 1973), chaps. 11, 13; and idem, Power and Market
(Menlo Park, Calif.: Institute for Humane Studies, 1970), chap. 1; as well as
Wooldridge, Uncle Sam, The Monopoly Man, chap. 6.