http://www.lewrockwell.com/orig3/long1.html

Can the experience of Icelandic Vikings eight centuries ago teach us a
lesson about the dangers of privatization? Jared Diamond thinks so. In
his article "Living on the Moon," published in the May 23, 2002, issue
of the New York Review of Books, Diamond portrays the history of Iceland
in the Viking period as a nightmarish vision of privatization run amuck.

Libertarian scholars and free-market enthusiasts have often pointed to
the Icelandic Free State (930-1262) as a positive example of a society
that functioned successfully with little or no government control.
Writing in the Journal of Legal Studies, economist David Friedman
observes that the Free State "might almost have been invented by a mad
economist to test the lengths to which market systems could supplant
government in its most fundamental functions." As Diamond himself notes:

"Medieval Iceland had no bureaucrats, no taxes, no police, and no army.
… Of the normal functions of governments elsewhere, some did not exist
in Iceland, and others were privatized, including fire-fighting,
criminal prosecutions and executions, and care of the poor."

But unlike those who see who see the Icelandic system as a model to
emulate, Diamond charges that the Free State’s excessively privatized
character made it radically unstable, ultimately leading to the system’s
violent collapse in 1262; his essay has already been cited by The
American Prospect as a crucial resource for those "making the case
against privatization and shrinking government." So who’s right? Does
medieval Iceland illustrate privatization’s benefits, or its hazards?

Lying in the North Atlantic between Norway and Greenland, its northern
shores brushing the Arctic Circle, Iceland is a stark and desolate
landscape of basalt and frozen lava, punctuated by volcanoes, geysers,
and glaciers – eerily beautiful for tourists, though a wearying
challenge for farmers. Such a harsh natural environment might have
attracted few immigrants, were it not for a still harsher political
climate back on the mainland. Iceland’s first settlers – Norse and
Celto-Norse refugees from King Harald Fairhair’s attempt in the late
ninth century to impose centralized control and property taxes on all of
Norway – established what historians call the Icelandic Free State, or
Icelandic Commonwealth, around the year 930. In Diamond’s words, "they
privatized government beyond Ronald Reagan's wildest dreams" (since
Reagan dramatically increased the size and expense of government over
the course of his administration, this is quite an understatement), "and
thereby collapsed in a civil war that cost them their independence."

This "thereby" is somewhat misleading, however, since civil strife did
not become a serious problem in Iceland until around 1220, nearly three
centuries after the system was established – and the system’s final
collapse did not come until 42 years after that. As I have written
elsewhere: "We should be cautious in labeling as a failure a political
experiment that flourished longer than the United States has even
existed." Indeed, given Diamond’s criterion of instability, the United
States cannot be called stable until it survives the year 2108. (Though
one could argue that it has already failed the test: the United States
had to wait only 85 years from its founding before plunging into a
catastrophic civil war, by contrast with Iceland’s 290 years.)

How did the Icelandic Free State work? The 11th-century historian Adam
von Bremen described Iceland as having "no king but the law." The legal
system’s administration, insofar as it had one, lay in the hands of a
parliament of about 40 officers whom historians call, however
inadequately, "chieftains." This parliament had no budget and no
employees; it met only two weeks per year. In addition to their
parliamentary role, chieftains were empowered in their own local
districts to appoint judges and to keep the peace; this latter job was
handled on an essentially fee-for-service basis. The enforcement of
judicial decisions was largely a matter of self-help (hence Iceland’s
reputation as a land of constant private feuding), but those who lacked
the might to enforce their rights could sell their court-decreed claims
for compensation to someone more powerful, usually a chieftain; hence
even the poor and friendless could not be victimized with impunity.

The basis of a chieftain’s power within the political order was the
power he already possessed outside it, in civil society. The office of
chieftaincy was private property, and could be bought or sold; hence
chieftaincies tended to track private wealth. But wealth alone was not
enough. As economic historian Birgir Solvason notes in his masterful
study of the period, "just buying the chieftainship was no guarantee of
power"; the mere office by itself was "almost worthless" unless the
chieftain could "convince some free-farmers to follow him." Chieftains
did not hold authority over territorially-defined districts, but
competed for clients with other chieftains from the same geographical area.

A chieftain was politician, lawyer, and policeman rolled into one: he
represented his clients in parliament, served as their advocate in
arbitration, and offered them armed assistance in dispute resolution. If
his customers were dissatisfied with the quality or price of these
services, they could switch to a different chieftain without having to
change their physical location; the relation between chieftain and
client could be freely terminated by either party, so that signing up
with a chieftain was rather like signing up for insurance or
long-distance phone service today; legal jurisdictions were, in effect,
"virtual" rather than physical.

The fact that the provision of "governmental" services was a competitive
rather than a monopolistic enterprise was arguably one of the Free
State’s greatest strengths; just as in any other market, the competitive
discipline imposed by the fear of losing clients to rival service
providers served as a check on inefficiency and abuse of power.
Icelandic law owed its resilience and flexibility to this decoupling of
authority from geography.

Diamond finds this competitive legal system unprecedented and bizarre:
"Everywhere else in the world that I know of, competing chiefs ruled
over mutually exclusive territories, within which everyone else had to
be that chief's follower." He seems unaware that non-territorial
jurisdiction has been a fairly common phenomenon throughout history;
indeed, the prevalence of non-territorial jurisdiction in medieval
Europe is often credited with explaining the "rise of the West." It is
certainly true, however, that the Free State pressed the principle of
non-territorial jurisdiction farther than most.

While non-territorial jurisdiction has its admirers, Diamond is
certainly not one of them. On the contrary, he condemns this "weird
territorial system" as a "recipe for chaos":

"Freedmen other than chiefs could choose their chief and switch
alliances, regardless of which chief happened to reside nearby. A
chief’s farm became surrounded by a mosaic of smaller farms, some of
them occupied by his own followers, others by other chiefs’ followers.
The resulting feuds fill The Sagas of Icelanders."

Yet in Jesse Byock’s Viking Age Iceland, one of the books on which
Diamond claims to be basing his analysis, we find precisely the opposite
information: the "lack of geographically defined chieftaincies" meant
that no group could claim "exclusive or long-time control over any one
area"; as a result, there were "few territorial ‘refuge areas’" where
"feuding parties lived protected … by a cluster of kin and friends."
This "made sustained feuding difficult," creating increased incentives
for compromise. In other words, the non-territorial nature of Iceland’s
legal order served to decrease, not to increase, the violence of feud.
(Diamond also asserts that Iceland’s lack of a strong central government
left it "defenseless against attacks," a charge he substantiates by
recounting an incident from 1627 – at which time Iceland was under the
"protection" of the Danish crown, and the Free State system Diamond is
criticizing had been defunct for nearly four centuries!)

Reading the Icelandic Sagas initially gives the impression of
unremitting violence – until one notices that most of the feuds they
describe consist of low-casualty skirmishes at long intervals. Though
often referred to as "Vikings," Icelanders made their living for the
most part through farming and trade, and violence was sporadic; thanks
to the economic incentives provided by Iceland’s legal system, conflicts
were settled in court more often than in combat. Like any good
storyteller, the authors of the Sagas simply skipped over the long
boring periods when nobody was killing anybody.

To keep Icelandic feud in perspective, one may contrast it with
continental Europe, whose princes, blessed with "mutually exclusive
territories," launched massive wars. As Solvason points out, Icelandic
society was "more peaceful and cooperative than its contemporaries"; in
England and Norway, by contrast, "the period from about 800 to 1200 is a
period of continuous struggle; high in both violence and killings."
Byock contrasts the prolonged and violent civil strife which attended
Christianization in Norway with its relatively swift and peaceful
Icelandic analogue. Icelanders treated the conflict between pagans and
Christians as a feud, to be resolved like any other feud – by
arbitration. The arbitrator decided in favor of Christianity, and that
was that. (So imbued were the Icelanders with the norms of conflict
resolution through arbitration that they dealt with haunted houses in
the same way – trying the ghosts for trespassing, in the confident
expectation that, if found guilty, a good Icelandic ghost would respect
the verdict of the court and peacefully depart!) Even at the Free
State’s worst, during the system’s catastrophic breakdown into intestine
warfare in the 1200s, the body count was fairly low; as Friedman writes: