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:

"During more than fifty years of what the Icelanders themselves
perceived as intolerably violent civil war, leading to the collapse of
the traditional system, the average number of people killed or executed
each year appears, on a per capita basis, to be roughly equal to the
current rate of murder and nonnegligent manslaughter in the United States."

Obviously the level of violence during the three centuries before the
civil war must have been even lower.

Diamond is best known for his 1997 book Guns, Germs, and Steel: The
Fates of Human Societies, which argues that history is determined
primarily by geographical rather than cultural factors; he applies a
similar analysis here, maintaining that the Icelanders’ radically
decentralized political system was forced on them by Iceland’s scanty
supply of natural resources, leaving them "too poor even to afford a
government." (Oh, for such poverty!) In short, the law of Iceland was
not the product of its inhabitants’ own ideas and values, but was in
effect selected for them by the nature of their physical environment.

But didn’t the Icelanders choose that environment because they were
hostile to centralized power back home? And doesn’t the structure of
their legal system reflect that very hostility? Diamond can hardly
ignore these facts, but he minimizes their importance:

"Having emigrated to Iceland in order to be independent of the growing
power of the Norwegian king, Icelanders wanted minimal government
anyway, and that attitude let them make a virtue of the necessity
imposed by their poverty."

In other words, Icelandic cultural attitudes were causally irrelevant to
the outcome; although the system the Icelanders ended up with was to
their liking, they would have ended up with much the same system whether
they liked it or not.

Diamond’s portrait of medieval Icelandic society as crippled by extreme
poverty is not borne out by the evidence. In their supposedly hapless
and half-starved condition, Icelanders created a rich literary tradition
of Eddas and Sagas, developed a sophisticated legal code, and mounted
voyages of exploration to North America – activities that would seem to
indicate a higher degree of prosperity and leisure than Diamond
suggests. Arguing that Icelanders were in fact relatively affluent,
Solvason points to the steady improvement of economic conditions and
increased production of export goods over the course of the Free State
period.

Ship ownership was far rarer in Iceland than one might expect in an
island community, particularly a "Viking" one; Diamond surmises that
this is because Iceland was poor in timber (or quickly became so as
settlers unsustainably exploited Iceland’s natural resources), so that
"the original ships of the settlers could not be replaced by new ships."
He infers that Iceland, being "almost entirely without ocean-going ships
of its own," was left at the mercy of foreign navigators who "controlled
and exploited Iceland’s trade." But as Solvason points out, timber was
regularly imported to Iceland for a variety of purposes, and could have
been used for shipbuilding if ships had been wanted; Solvason concludes
that Icelanders voluntarily chose to exploit their comparative advantage
in ranching (among Iceland’s chief exports were meat and wool) and leave
shipbuilding to others, presumably because they found this decision more
profitable.

Diamond’s geography-is-destiny approach to history deserves our
skepticism in any case. The world is full of bleak, inhospitable,
resource-poor regions whose inhabitants scratch out a meager living; but
how many such regions have left us a cultural legacy comparable to
medieval Iceland’s? Diamond would do well to heed philosopher R. G.
Collingwood’s dictum that history is ultimately determined not by
nature, but by what human beings make of nature. By all evidence,
Icelanders maintained their privatized political system, not because
they were driven by poverty and necessity to do so (though Diamond
apparently finds their system so uncongenial that he can conceive no
other reason), but quite simply because it worked.

But if the Icelandic Free State was so successful, why did it eventually
collapse? Clearly, the explanation lies in the growing centralization of
wealth and power. As Diamond writes:

"Originally, soon after settlement, Iceland had about 4,500 independent
farms, but by the thirteenth century 80 percent of Iceland’s farmland
was owned by five families, and all the other formerly independent
farmers had become tenants."

These five families also managed to buy up most of the chieftaincies,
enabling them to dominate the courts and parliament. The concentration
of chieftaincies in fewer hands also meant an end to the existence of
competing chieftains within the same territory; Iceland began to be
fractured into regions, each operating as a local monopoly or
mini-state. During the years 1220-1262, the resulting struggle for
hegemony among these mini-states broke out into open conflict, a crisis
that was finally resolved only when the Icelanders, exhausted by civil
war, invited King Haakon of Norway to govern them, thus bringing the
Free State period to a close.

To Diamond, this final decision illustrates the utter bankruptcy of the
Icelandic system: "I cannot think of another historical case of an
independent country that became so desperate that it turned itself over
to another country." Perhaps he should have tried harder; he might have
remembered England in 1688, offering the crown to William of Orange
after deposing the Stuarts – or, harking farther back, the many small
states who responded to civil strife by calling in a Roman garrison,
thus submitting de facto to Roman authority. Moreover, the very
desperation of the move indicates how unaccustomed the Icelanders were
to levels of violence that had long been commonplace on the mainland. In
any case, the Icelanders presumably saw the Covenant of 1262-64, not as
a surrender of national independence, but simply as yet another case of
signing up with a new chieftain because their previous chieftains had
proven unsatisfactory. This new chieftain, the Norwegian king, was
farther away, and so perhaps less dangerous; certainly he was wealthier
than any Icelandic chieftain, and so (they imagined) less tax-hungry.
What they failed to recognize was the incentive implications of
switching from a competitive system to a monopolistic one – though
admittedly, their own system had lost much of its competitive character
already. (War is not a form of competition; it is what arises when
competition breaks down.)

The process of competitive chieftaincies turning into monopolistic
mini-states is obviously a move toward less privatization, not more; and
it was precisely when Iceland had become less privatized and more like
mainland Europe – a collection of principalities vying for supremacy –
that it collapsed into the kind of large-scale warfare that had raged
across the rest of Europe for centuries. It seems rather unfair, then,
to blame this catastrophe on privatization. Still, why didn’t Iceland’s
privatized system of law prevent the increasing concentration of wealth
and power in the first place? Was this failure symptomatic of an
inherent flaw in the Icelandic system?

Typically, Diamond offers an environmental explanation for the
increasing concentration of wealth: Iceland’s harsh climate. "In cold
years the poorer farms culled or lost their livestock in the winter
because of insufficient hay," and so were "forced to become debtors who
were dependent on others for survival." The cogency of this explanation
is doubtful. Wealthier farmers had more hay, but they presumably also
had more livestock; hence they most likely did not have more hay per
head of livestock. Since wealth was held predominantly in land and
livestock, not in currency, it’s unclear why hard winters should be
expected to have a less severe impact on wealthy farmers than on poor ones.

A more plausible explanation for the Free State’s decline points to the
introduction of the tithe in 1096. Made possible by Iceland’s conversion
to Christianity a century earlier, the tithe – to pay church officials
and maintain church buildings – was Iceland’s first real tax. (Previous
"taxes" generally turn out on closer inspection to be voluntary
exchanges of fees for services.) Assessed at 1% of the payer’s property,
it was also Iceland’s first graduated tax (earlier fees were
one-size-fits-all), and so took in much more revenue. Most importantly,
the tithe lacked a competitive element. Recall the non-territorial
character of a chieftain’s jurisdiction: a chieftain’s temptations to
self-aggrandizement were kept in check by the knowledge that if he
acquired delusions of grandeur or charged too high a price for his
services, his clients could abandon him for a rival. But the tithe was
territorial; all those who lived in the vicinity of a particular church
building had to pay for its upkeep, and were not at liberty to transfer
their support elsewhere. The catch is that the portion of tithe revenue
allocated to maintaining church buildings went not to the official
church hierarchy but to the wealthy private owners (usually chieftains)
of stadhir, "churchsteads," i.e., plots of land on which churches had
been built. The tithe was a property tax; but chieftaincies, though
marketable commodities, were exempt – as were the churchsteads
themselves, predominantly owned by chieftains. (The parliament that
enacted the tithe law was of course composed entirely of chieftains.)

The tithe thus did more than just increase the income of the chieftains;
it decoupled that income from accountability. Economic inequalities per
se are not a serious threat to liberty so long as they operate in a
genuine market context, where the way to gain and maintain wealth is to
please one’s customers; before the introduction of the tithe, a
chieftain who proved too power-hungry would alienate his customers and
so suffer financial discipline. But chieftains who owned churchsteads
now had a captive market, and so were freed from all competitive
restraints on their accumulation of wealth and power. Through buying off
or intimidating less wealthy chieftains, the top families were able to
gain control of multiple chieftaincies. This gave them a lock on the
parliament, enabling them to pass still further taxes; it also decreased
competition among chieftains, allowing them to charge monopoly prices
and drive their clients into a serf-like state of debt and dependence.

The Icelandic system did fall through an inherent flaw, then, but not
the one Diamond imagines; the Free State failed, not through having too
much privatization, but through having too little. The tithe, and
particularly the portion allotted to churchstead maintenance,
represented a monopolistic, non-competitive element in the system. The
introduction of the tithe was in turn made possible by yet another
non-competitive element: the establishment of an official state church
which everyone was legally bound to support. Finally, buying up
chieftaincies would have availed little if there had been free entry
into the chieftaincy profession; instead, the number of chieftains was
set by law, and the creation of new chieftaincies could be approved only
by parliament – i.e., by the existing chieftains, who were naturally
less than eager to encourage competitors. It is precisely those respects
in which the Free State was least privatized and decentralized that led
to its downfall – while its more privatized aspects delayed that
downfall for three centuries.

Diamond pities the medieval Icelanders. We might do better to emulate them.

Further Reading

Bruce Benson. The Enterprise of Law: Justice Without the State. Pacific
Research Institute, San Francisco, 1990.

Tom W. Bell. "Polycentric Law." Humane Studies Review, Vol. 7, No. 1,
1991/92.

Jesse L. Byock. Feud in the Icelandic Saga. University of California
Press, Berkeley, 1982.

-----. Medieval Iceland: Society, Sagas, and Power. University of
California Press, Berkeley, 1988.

-----. Viking Age Iceland. Penguin, London, 2001.

David Friedman. "Private Creation and Enforcement of Law: A Historical
Case." Journal of Legal Studies 8, 1979.

-----. The Machinery of Freedom: Guide to a Radical Capitalism. Second
Edition. Open Court, La Salle, 1989. Chapter 44.

-----. "Viking Iceland: Anarchy that Worked," Liberty 2, no. 6 (July
1989), pp. 37-40.

Albert Loan. "Institutional Bases of the Spontaneous Order: Surety and
Assurance." Humane Studies Review, Vol. 7, No. 2, 1992.

Roderick T. Long. "The Decline and Fall of Private Law in Iceland."
Formulations 1, no. 3 (Spring 1994).

William I. Miller. Bloodtaking and Peacemaking: Feud, Law, and Society
in Saga Iceland. University of Chicago Press, Chicago, 1990.

Birgir T. Runolfsson Solvason. Ordered Anarchy, State, and Rent-Seeking:
The Icelandic Commonwealth, 930-1264. Ph.D. Dissertation in Economics,
George Mason University, 1991.

-----. "Ordered Anarchy: Evolution of the Decentralized Legal Order in
the Icelandic Commonwealth," Icelandic Economic Papers 17 (1992).

-----. 1993. "Institutional Evolution in the Icelandic Commonwealth."
Constitutional Political Economy 4, no. 1, pp. 97-125.

June 6, 2002

Roderick T. Long [send him mail] is Assistant Professor of Philosophy at
Auburn University, President of the Alabama Philosophical Society,
Editor of the Libertarian Nation Foundation periodical Formulations, and
an Adjunct Scholar of the Ludwig von Mises Institute.

Copyright 2002 by LewRockwell.com
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