This essay was previously unpublished, written in 1933.

I understand that what you want is not a publishable article but merely a conspectus or brief, which will aid the comprehension of two remarkable historical phenomena.

First, why is it that Liberalism is now motivated by principles exactly opposite to those which originally motivated it, and how did this change come about? Second, why has the spirit and temper of Liberals undergone a corresponding change, and how did this change come about?

The facts are clearly apparent. We now see on all sides the extraordinary spectacle of Liberals doing their best to destroy the cardinal freedoms and immunities which Liberals formerly defended, while all the forces which are historically and traditionally known as Tory or Conservative are arrayed in defense of those freedoms. Furthermore we see Liberals vehemently vilifying those who hold to the original basic principles of Liberalism, denouncing them as enemies of society, and doing all they can to discredit and disable them. These two are probably the strangest anomalies that recent history presents.

So far in this book, we have developed a theory of liberty and property rights, and have outlined the legal code that would be necessary to defend those rights. What of government, the State? What is its proper role, if any?

Most people, including most political theorists, believe that once one concedes the importance, or even the vital necessity, of some particular activity of the State – such as the provision of a legal code – that one has ipso facto conceded the necessity of the State itself.

The State indeed performs many important and necessary functions: from provision of law to the supply of police and fire fighters, to building and maintaining the streets, to delivery of the mail. But this in no way demonstrates that only the State can perform such functions, or, indeed, that it performs them even passably well.

Suppose, for example, that there are many competing cantaloupe stores in a particular neighborhood. One of the cantaloupe dealers, Smith, then uses violence to drive all of his competitors out of the neighborhood; he has thereby employed violence to establish a coerced monopoly over the sale of cantaloupes in a given territorial area.

A major problem with discussions of the necessity of government is the fact that all such discussions necessarily take place within a context of centuries of State existence and State rule – rule to which the public has become habituated. The wry coupling of the twin certainties in the popular motto "death and taxes" demonstrates that the public has resigned itself to the existence of the State as an evil but inescapable force of nature to which there is no alternative.

The force of habit as the cement of State rule was seen as early as the sixteenth-century writings of de la Boetie. But, logically, and to cast off the scales of habit, we must not merely compare an existing State with an unknown quantity, but begin at the social zero point, in the logical fiction of the "state of nature," and compare the relative arguments for the establishment of the State with those on behalf of a free society.

Let us assume, for example, that a sizeable number of people suddenly arrive on Earth, and that they must now consider what sort of social arrangements to live under. One person or group of persons argues as follows (i.e., the typical argument for the State): "If each of us is allowed to remain free in all aspects, and particularly if each of us is allowed to retain weapons and the right of self-defense, then we will all war against each other, and society will be wrecked. Therefore, let us turn over all of our guns and all of our ultimate decision-making power and power to define and enforce our rights to the Jones family over there. The Jones family will guard us from our predatory instincts, keep social peace, and enforce justice." Is it conceivable that any one (except perhaps the Jones family itself) would spend one moment considering this clearly absurd scheme?

If the State, then, is a vast engine of institutionalized crime and aggression, the "organization of the political means" to wealth, then this means that the State is a criminal organization, and that therefore its moral status is radically different from any of the just property-owners that we have been discussing in this volume. And this means that the moral status of contracts with the State, promises to it and by it, differs radically as well. It means, for example, that no one is morally required to obey the State (except insofar as the State simply affirms the right of just private property against aggression). For, as a criminal organization with all of its income and assets derived from the crime of taxation, the State cannot possess any just property.

This means that it cannot be unjust or immoral to fail to pay taxes to the State, to appropriate the property of the State (which is in the hands of aggressors), to refuse to obey State orders, or to break contracts with the State (since it cannot be unjust to break contracts with criminals). Morally, from the point of view of proper political philosophy, "stealing" from the State, for example, is removing property from criminal hands, is, in a sense, "homesteading" property, except that instead of homesteading unused land, the person is removing property from the criminal sector of society – a positive good.

Each state has an assumed monopoly of force over a given territorial area, the areas varying in size in accordance with different historical conditions. Foreign policy, or foreign relations, may be defined as the relationship between any particular State, A, and other States, B, C, D, and the inhabitants living under those States. In the ideal moral world, no States would exist, and hence, of course, no foreign policy could exist. Given the existence of States, however, are there, any moral principles that libertarianism can direct as criteria for foreign policy? The answer is broadly the same as in the libertarian moral criteria directed toward the "domestic policy" of States, namely to reduce the degree of coercion exercised by States over individual persons as much as possible.

Before considering inter-State actions, let us return for a moment to the pure libertarian stateless world where individuals and their hired private protection agencies strictly confine their use of violence to the defense of person and property against violence. Suppose that, in this world, Jones finds that he or his property is being aggressed against by Smith. It is legitimate, as we have seen, for Jones to repel this invasion by the use of defensive violence. But, now we must ask: is it within the right of Jones to commit aggressive violence against innocent third parties in the course of his legitimate defense against Smith? Clearly the answer must be "No." For the rule prohibiting violence against the persons or property of innocent men is absolute; it holds regardless of the subjective motives for the aggression.

The great intellectual and political movement known as liberalism has been one of the prime shapers of the modern world. As Ludwig von Mises wrote, it "changed the face of the earth," creating for the peoples who shared in it a life of freedom and abundance unexampled in previous history. Given this, the paucity of general works on the history and philosophical bases of liberalism and the mediocrity of most of the readily accessible ones is curious indeed. (This does not hold, however, for works of more limited scope. The Decline of American Liberalism, (1955) by Arthur A. Ekirch, Jr., for example, combines fine scholarship with a seasoned understanding of the true meaning of liberalism.)

The best known book in the field is doubtless the History of European Liberalism, by Guido de Ruggiero, originally published in 1925. Still useful in some respects, it suffers from a conceptual haziness and a lack of cutting edge perhaps attributable to the neo-idealist philosophy popular in Italy at the time, of which the author was a follower. Moreover, although himself a liberal in a very broad sense, Ruggiero had little knowledge of economics or appreciation of the functioning of the free market. His vulnerability to anticapitalist arguments may be gathered, for instance, from his treatment of the Industrial Revolution in Britain. Here he repeats the common socialist interpretation of that great process as a catastrophe for the working class, in terms scarcely differing from those of Friedrich Engels.

It is the widespread view in academia that John Maynard Keynes was a model classical liberal in the tradition of Locke, Jefferson, and Tocqueville.

Like these men, it is commonly held, Keynes was a sincere, indeed, exemplary, believer in the free society. If he differed from the classical liberals in some obvious and important ways, it was simply because he tried to update the essential liberal idea to suit the economic conditions of a new age.

But if Keynes was such a model champion of the free society, how can we account for his peculiar comments, in 1933, endorsing, though with reservations, the social "experiments" that were going on at the time in Italy, Germany, and Russia? And what about his strange introduction to the 1936 German translation of the General Theory, where he writes that his approach to economic policy is much better suited to a totalitarian state such as that run by the Nazis than, for instance, to Britain?