The doyen of anarcho-capitalism à la Rothbard gives us his account of the Industrial Revolution, in just under five minutes. Both the video clip and the book (a guide to "eternal piece and prosperity" as promised at time mark 1:47) in which the narrative is spelled out more fully are appropriately entitled The Great Fiction.
The relevant part starts at time mark 7:46.
Ironically, among the many institutional changes leading up to the Industrial Revolution one of the most pivotal developments was the increase in size, scope, and power of the state, an indispensable precondition for freedom as we have come to know it in the modern era. You cannot have sophisticated private law without sophisticated public law, and the latter requires a state that is sophisticated by historical standards.
For rationalists, however, arguing from first principles held to be timeless, historical evidence is of little concern other than for embellishment. What matters to them is the mind (of the select few enlightened by supposedly self-evident truths).
In fact, in selecting their premises (first principles), rationalists seem to be more motivated by the prospect of arriving at what appear to them conclusive and desirable deductive results (ideological bias), than by a concern for empirical substance and veracity.
For instance, the principle of homesteading - so central to anarcho-capitalist ideology - is from an empirical point of view utterly useless: the historical conditions of initial acquisition typically cannot be reconstructed, and if they could be established one would often find that the circumstances are inordinately complex, containing fundamentally contestable or undecidable aspects. Nonetheless, libertarian rationalists stubbornly cling to the principle because they feel it offers the coherence they are seeking so desperately.
For some taste of problems involved in the homesteading principle:
What if a farmer and an entrepreneur compete for first possession. The farmer will put the land to productive use almost at once, bringing about a yield that is meagre but sufficient for him and his family. The entrepreneur will be able to come up with productive results not earlier than two years hence. His success is uncertain - yet no more uncertain than the farmer's viability. However, on succeeding the entrepreneurial project will be enormously productive, providing lavishly for thousands of people including the farmer, whose first possession impoverishes society by comparison. The farmer insists absolutely on first possession, and so does the entrepreneur. Both have arrived at the same time on the premises in question.
If you want to understand law (and the possibilities of law in a free society), you must take account of the crooked reality* - as in crooked timber of humanity - in which it grows. This will give you a better idea how institutions evolved and might be honed to cope with inevitably messy and muddled conditions, rather than positing some ideal conditions that are not and will never be found in the real world - and then go on to accuse people of stupidity or corruption for living and acting in the real world.
See also What Does Liberty Matter? and Elementary Errors of Anarchism (1/1).
* "Out of the crooked timber of humanity no straight thing was ever made" (Aus so krummem Holze, als woraus der Mensch gemacht ist, kann nichts ganz Gerades gezimmert werden) is from Kant's Idea for a Universal History with a Cosmopolitan Purpose.
The Great Fiction (2/3), The Great Fiction (3/3) - Fundamentum Inconussum and Performative Contradiction.
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