Chaos Theory : Law without the State

[Chaos Theory (2002; 2010)]

Without question, the legal system is the one facet of society that supposedly requires state provision.[1] Even such champions of laissez-faire as Milton Friedman and Ludwig von Mises believed a government must exist to protect private property and define the "rules of the game."

However, their arguments focused on the necessity of law itself. They simply assumed that the market is incapable of defining and protecting property rights. They were wrong.

In this essay, I argue that the elimination of the state will not lead to lawless chaos. Voluntary institutions will emerge to effectively and peacefully[2] resolve the disputes arising in everyday life. Not only will market law be more efficient; it will also be more equitable than the government alternative.

Just as right-wing hawks embrace the Orwellian notion that War is Peace, left-wing egalitarians believe that Slavery is Freedom.[3] The hawks wage endless war to end war, while the social democrats engage in massive theft — or "taxation" as they call it — to eliminate crime.

It is high time to abandon such monstrous paradoxes. It took no king to produce language, money, or science, and it takes no government to produce a just legal system.

Contract

First, we must abandon the idea of a mythical "law of the land." There doesn't need to be a single set of laws binding everyone. In any event, such a system never existed. The laws in each of the 50 states are different, and the difference in legal systems between countries is even more pronounced. Yet we go about our daily lives, and even visit and do business with foreign nations, without too much trouble.

All actions in a purely free society[4] would be subject to contract. For example, it is currently a crime to steal, because the legislature says so. A prospective employer knows that if I steal from his firm, he can notify the government and it will punish me.

But in a stateless society there wouldn't be a legislated body of laws, nor would there be government courts or police. Nonetheless, employers would still like some protection from theft by their employees. So before hiring an applicant, the employer would make him sign a document[5] that had clauses to the effect of, "I promise not to steal from the Acme Firm. If I get caught stealing, as established by Arbitration Agency X, then I agree to pay whatever restitution that Agency X deems appropriate."

We immediately see two things in this contract. First, it is completely voluntary; any "laws" binding the employee have been acknowledged by him, beforehand. Second, the existence of Arbitration Agency X ensures fairness and objectivity in any disputes.

To see this, suppose that it didn't. Suppose that a big firm bribed the arbitrators at Agency X, so that lazy workers (who were going to be fired anyway) were (falsely) charged by the employers with embezzlement, while Agency X always ruled "guilty." With this scheme, the big firm could bilk thousands of dollars from its bad employees before terminating them. And since the hapless employees had agreed beforehand to abide by the arbitration outcome, they could do nothing about it.[6]

But upon consideration, it's easy to see that such behavior would be foolish. Just because an arbitration agency ruled a certain way wouldn't make everyone agree with it, just as people complain about outrageous court rulings by government judges. The press would pick up on the unfair rulings, and people would lose faith in the objectivity of Agency X's decisions. Potential employees would think twice before working for the big firm, as long as it required (in its work contracts) that people submitted to the suspect Agency X.

Other firms would patronize different, more reputable arbitration agencies, and workers would flock to them. Soon enough, the corrupt big firm and Arbitration Agency X would suffer huge financial penalties for their behavior.

Under market anarchy, all aspects of social intercourse would be "regulated" by voluntary contracts. Specialized firms would probably provide standardized forms so that new contracts wouldn't have to be drawn up every time people did business. For example, if a customer bought something on installment, the store would probably have him sign a form that said something to the effect, "I agree to the provisions of the 2002 edition Standard Deferred Payment Procedures as published by the Ace legal firm."

Expertise

Under this system, legal experts would draft the "laws of the land," not corrupt and inept politicians. And these experts would be chosen in open competition with all rivals. Right now one can buy "definitive" style manuals for writing term papers, or dictionaries of the English language. The government doesn't need to establish the "experts" in these fields. It would be the same way with private legal contracts. Everybody knows the "rules" of grammar just like everyone would know what's "legal" and what isn't.

Murder

Of course, one of the most basic stipulations in any contractual relationship — whether entering a mall or living in a neighborhood co-op — would be strong prohibitions on murder. In other words all contracts of this type would have a clause saying, "If I am found guilty of murder I agree to pay $y million to the estate of the deceased." Naturally, no one would sign such a contract unless he were sure that the trial procedures used to determine his guilt or innocence had a strong presumption of innocence; nobody would want to be found guilty of a murder he didn't commit. But on the other hand, the procedures would have to be designed so that there were still a good chance that guilty people would actually be convicted, since people don't want to shop in malls where murder goes unpunished.

And, because all contracts of this sort (except possibly in very eccentric areas frequented by people who liked to live dangerously) would contain such clauses, one could say that "murder is illegal" in the whole anarchist society, even though the evidentiary rules and penalties might differ from area to area. But this is no different from our current system,[7] and no one doubts that "murder is illegal" in the current United states.

Profitability the Standard

The beauty of this system is that the competing desires of everyone are taken into account. The market solves this problem everyday in reference to other goods and services. For example, it would be very convenient for customers if a deli were open 24 hours a day. But on the other hand, such long shifts would be very tedious for its workers. So the market system of profit-and-loss determines the "correct" hours of operation.

In the same way, we saw above how evidentiary rules would be determined under a system of private law. Because people would be submitting themselves contractually to the rulings of a certain arbitration agency, the agency would need a reputation for objectivity and fairness to defendants. But on the other hand, the owners of stores, firms, rental cars, etc. would want some means of restitution in the event of theft, and so the arbitration agencies couldn't be too lenient. As with the hours of a store's operation, so too would the legal procedures be decided by the profit and loss test. Maybe there would be juries, maybe there wouldn't. We can't predict this beforehand, just as we can't say a priori how many tricycles "should" be made this year; we let the market take care of it, automatically.

Insurance

The contractual system described above seems to work well, except for one nagging problem: How can people afford to pay these outrageous fines? Granted, someone might sign a piece of paper, pledging restitution to his employer if he is caught stealing. But suppose he steals anyway, and is found guilty by the arbitration agency, but has no money. Then what?

Well, how does our present system of auto damages work? Right now, if I sideswipe someone, I must pay a stiff penalty. Or rather, my insurance company does.

It would be the same way with all torts and crimes under the system I've described. An insurance company would act as a guarantor (or cosigner) of a client's contracts with various firms. Just as a bank uses experts to take depositors' money and efficiently allocate it to borrowers, so too would the experts at the insurance company determine the risk of a certain client (i.e., the likelihood he or she would violate contracts by stealing or killing) and charge an appropriate premium. Thus, other firms wouldn't have to keep tabs on all of their customers and employees; the firms' only responsibility would be to make sure everyone they dealt with carried a policy with a reputable insurance agency.

Under this system, the victims of a crime are always paid, immediately. (Contrast this to the government system, where victims usually get nothing except the satisfaction of seeing the criminal placed behind bars.) There would also be incentives for people to behave responsibly. Just as reckless drivers pay higher premiums for car insurance, so too would repeat offenders be charged higher premiums for their contract insurance.

And why would the person with criminal proclivities care about his insurance company? Well, if he stopped paying his premiums, his coverage would be dropped. With no one to underwrite his contractual obligations, such a person would make a very poor customer or employee. People wouldn't hire him or trust him to browse through a china shop, since there would be no "legal" recourse if he did anything "criminal." In order to get by in society, it would be extremely useful to keep one's insurance coverage by always paying the premiums. And that means it would be in one's great interest to refrain from criminal activity, since that would be the way to keep premiums down.

Admittedly, such arguments seem fanciful. But they are no more far-fetched than the modern credit-card system. People have huge lines of credit advanced to them, sometimes only by filling out a form, and it is extremely easy to engage in credit-card fraud. A prodigal may run up a huge bill and simply refuse to pay it, yet in most cases nothing physical will happen to him. But most people don't behave in such an irresponsible manner, because they don't want to ruin their credit history. If they do, they know they'll forever more be cut off from this wonderful tool of the capitalist society.

Prison

We have now established that a system of voluntary, contractual law can be imagined theoretically, and would even work in a society populated with self-interested but ultimately rational people.

But what about the really tough cases? What about the incorrigible bank robber, or the crazed ax murderer? Surely there will always be deviant, antisocial individuals who, through malice or ignorance, ignore the incentives and commit crimes. How would a system of market anarchy deal with such people?

First, keep in mind that wherever someone is standing in a purely libertarian[8] society, he would be on somebody's property. This is the way in which force could be brought to bear on criminals without violating their natural rights.

For example, the contract[9] of a movie theater would have a clause to the effect, "If I am judged guilty of a crime by a reputable arbitration agency [perhaps listed in an Appendix], I release the theater owner from any liability should armed men come to remove me from his property."

So we see that it is not a contradiction to use force to capture fugitives in a completely voluntary society. All such uses would have been authorized by the recipients themselves beforehand.[10]

But where would these ne'er-do-wells be taken, once they were brought into "custody"? Specialized firms would develop, offering high-security analogs to the current jailhouse. However, the "jails" in market anarchy would compete with each other to attract criminals.

Consider: No insurance company would vouch for a serial killer if he applied for a job at the local library, but they would deal with him if he agreed to live in a secure building under close scrutiny. The insurance company would make sure that the "jail" that held him was well-run. After all, if the person escaped and killed again, the insurance company would be held liable, since it pledges to make good on any damages its clients commit.

On the other hand, there would be no undue cruelty for the prisoners in such a system. Although they would have no chance of escape (unlike government prisons), they wouldn't be beaten by sadistic guards. If they were, they'd simply switch to a different jail, just as travelers can switch hotels if they view the staff as discourteous. Again, the insurance company (which vouches for a violent person) doesn't care which jail its client chooses, so long as its inspectors have determined that the jail will not let its client escape into the general population.

Doubts

Although superficially coherent and workable, the proposed system of market law will certainly engender skepticism. In the interest of brevity, I will deal with some common (and valid) concerns.[11]

"What about someone who has no insurance?"

If an individual didn't carry insurance, other people would have no guaranteed recourse should the individual damage or steal their property. Such an individual would therefore be viewed with suspicion, and people would be reluctant to deal with him except for single transactions involving small sums. He would probably be unable to get a full-time job, a bank loan, or a credit card. Many residential and commercial areas would probably require that all visitors carried valid policies before allowing them to even enter.[12]

So we see that those without insurance would have their options, including their freedom of movement, greatly restricted. At the same time, the premiums for basic contract insurance, at least for people without a criminal history, would be quite low.[13] So there wouldn't be very many people walking around without this type of insurance. It's true, some people would still commit crimes and would have no insurance company to pay damages, but such cases are going to occur under any legal system.

Furthermore, once someone (without insurance) had committed a serious crime, he would still be chased by detectives, just as he would be under the government system. And if these (far more efficient) private detectives found him at any time on a normal piece of property, they would have the full right to arrest him.[14]

Warring Agencies

Critics often dismiss private law by alleging that disputes between enforcement agencies would lead to combat — even though this happens between governments all the time! In truth, the incentives for peaceful resolution of disputes would be far greater in market anarchy than the present system. Combat is very expensive, and private companies take much better care of their assets than government officials take care of their subjects' lives and property.

In any event, those engaging in "warfare" in a free society would be treated as any other murderers. Unlike government soldiers, private mercenaries would receive no special privileges to engage in condoned violence. Those agencies interpreting the law would not be the same as the firms enforcing it. There is no intrinsic reason to worry about battles between private enforcement agencies,[15] any more than battles between the government army and navy.

"Won't the Mafia take over?"

It is paradoxical that the fear of rule by organized crime families causes people to support the state, which is the most "organized" and criminal association in human history. Even if it were true that under market anarchy, people had to pay protection money and occasionally get whacked, this would be a drop in the bucket compared to the taxation and wartime deaths caused by governments.

But even this concedes too much. For the mob derives its strength from government, not the free market. All of the businesses traditionally associated with organized crime — gambling, prostitution, loan sharking, drug dealing — are prohibited or heavily regulated by the state.[16] In market anarchy, true professionals would drive out such unscrupulous competitors.

"Your insurance companies would become the state!"

On the contrary, the private companies providing legal services would have far less power under market anarchy than the government currently possesses. Most obvious, there would be no power to tax or to monopolize "service." If a particular insurance company were reluctant to pay legitimate claims, this would become quickly known, and people would take this into account when dealing with clients of this disreputable firm.[17]

The fear that (under market anarchy) private individuals would replace politicians overlooks the true causes of state mischief. Unlike feudal monarchs, democratic rulers don't actually own the resources (including human) that they control. Furthermore, the duration of their rule (and hence control of these resources) is very uncertain. For these reasons, politicians and other government employees do not exercise much care in maintaining the (market) value of the property in their jurisdiction. Shareholders of a private company, however, have every interest in choosing personnel and policies to maximize the profitability of the firm.

All the horrors of the state — onerous taxation, police brutality, total war — are not only monstrous, but they're also grossly inefficient. It would never be profitable for anarchist insurance and legal firms to mimic the policies set by governments.[18]

Children

The question of children is one of the most difficult. As a first pass, let us note that, obviously, concerned parents would only patronize those schools, and live in those apartments or housing complexes, where the protection of their children was of paramount importance to the staff.

Beyond this, the basic "prohibitions" on parental child abuse and neglect could be stipulated in the marriage contract. In addition to whatever romance may be entailed, a marriage is ultimately a partnership between two people, and prudent couples will officially spell out this arrangement, with all of its benefits and obligations. For example, before abandoning her career to raise a man's children, a woman may require a financial pledge in case of divorce (i.e., dissolving the partnership). In the same way, a standard clause in marriage contracts could define and specify penalties for the improper treatment of children.[19]

Another point to consider is the enhanced role of adoption in a free society. Much as it shocks modern sensibilities, there would be a fully functioning "baby market," in which parental privileges were sold to the highest bidder.[20] Although seemingly crass, such a market would surely reduce child abuse. After all, abusive or negligent parents are probably the ones most likely to offer their children for adoption, when loving couples are allowed to pay them handsomely for it.[21]

The controversial issue of abortion, just as other conflicts in a private law system, would be handled by competing firms setting policies to best match the desires of their customers. Those people sufficiently horrified by the practice could establish a gated community in which all residents agreed to refrain from abortion, and to report anyone caught performing one.[22]

Title Registry

In market anarchy, who would define property rights? If someone hands over the money to purchase a house, what guarantees does he have?

This is a complex issue, and I won't be able to give specifics, since the actual market solution would depend on the circumstances of the case and would draw on the legal expertise (far greater than mine) of the entire community.[23] I can, however, offer some general remarks.

Whatever (if any) the abstract or metaphysical nature of property law, the purpose of public titles is quite utilitarian; they are necessary to allow individuals to effectively plan and coordinate their interactions with each other. Specialized firms (perhaps distinct from arbitration agencies) would keep records on the property titles, either for a specific area or group of individuals. Title registry would probably be accomplished through a complex, hierarchical web of such firms.[24]

The fear of rogue agencies, unilaterally declaring themselves "owner" of everything, is completely unfounded. In market anarchy, the companies publicizing property rights would not be the same as the companies enforcing those rights. More important, competition between firms would provide true "checks and balances." If one firm began flouting the community norms established and codified on the market, it would go out of business, just as surely as a manufacturer of dictionaries would go broke if its books contained improper definitions.

Infinite Regress

A sophisticated critic may charge that my proposal rests upon a circular argument: How can people use contracts to define property rights when a system of property rights is necessary to determine which contracts are valid? After all, Smith can't sell Jones a car for a certain sum of money, unless it is established beforehand that Smith is the just owner of the car (and Jones the owner of the sum of money).[25]

To see the solution, we must break the problem into two parts. First, we should ask, "Could the free market provide a foundation for social interaction?" I believe the previous sections have demonstrated this. That is, I have shown above that if we had a system of property titles recognized by competing firms, then a contractual system governing the exchange of those titles would form a stable basis for private law.

Now, it is an entirely different question to ask, "How are these titles initially defined and allocated?" This is a broad topic, and it will be addressed in the next section. But to deal with the issue as it relates to the alleged infinite regress, let us consider contract law.

Contract law is a specific branch of law, much as tort law or constitutional law. It is used, for example, to determine whether a contract between two parties is legally binding. Now surely contract law can't be established in an anarchist system of contractual law, for wouldn't this beg the question?

No. The contractual pledges made by individuals would contain provisions for all of the contingencies handled by today's contract law. For example, the insurance company backing up a customer would be promising, "We will make good on any debts that our client fails to pay, so long as the obligations have been spelled out in a valid contract, according to the terms described in the Standard Contract Law pamphlet published by the Ace legal firm."

This pamphlet would perhaps require signatures in black ink, notarized oversight for large sums, and that the signers to a contract were of sufficient age and sobriety, and were not under duress, when the contract was made.[26] As with all elements of private law, the precise rules governing contract interpretation would be determined by the (possibly conflicting) desires of everyone through the profit-and-loss test.

Finally, keep in mind that the ultimate judge in a given case is … the judge. No matter how voluminous the law books, or how obvious the precedents, every case will ultimately depend on the subjective interpretation of an arbiter or judge who must deliver the ruling.[27]

We must never forget that written statutes as such are powerless unless used by competent and equitable individuals. Only in a competitive, voluntary system is there any hope for judicial excellence.

"How do we get there?"

The route to a free society will vary according to the history of a region, and consequently no single description will do. The path taken by North Korean market anarchists will no doubt differ from the course of similarly minded individuals in the United states. In the former, violent overthrow of unjust regimes may occur, while in the latter, a gradual and orderly erosion of the state is a wonderful possibility. The one thing all such revolutions would share is a commitment by the overwhelming majority to a total respect of property rights.

All societies, no matter how despotic their rulers, must possess a basic degree of respect for property rights, even if such respect is given due to custom rather than intellectual appreciation. All people know that it is a crime to rape or murder;[28] even rapists and murderers know this.

Such universal, intuitive notions of justice would constitute the foundation for a system of private law. This widespread agreement would allow for more specific, contractually defined rights to evolve.[29] The process would be continuous, with one stage of codified property titles and legal rules forming the basis for the next generation of judges and scholars to systematize and extend.

Regular people understand the waste and senselessness of conflict; they will go to great lengths and make great compromises to achieve consensus. For example, despite the lack of a formal government, newly arriving miners during the California gold rushes respected the claims of earlier settlers. To take a more modern example, even inner-city toughs unthinkingly obey the "rules" in a pickup game of basketball, despite the lack of a referee.[30]

In market anarchy, free individuals, through their patronage of competing judicial and insurance firms, would foster a humane and just legal system. Those antisocial individuals who disrupted the process (by blatantly violating obvious property rights) would be dealt with in the ways described earlier.

Legal Positivism?

Some readers may wonder how I can propose a replacement for the state's "justice" system when I haven't first offered a rational theory of the source and nature of legitimate property rights.

The answer is simple: I don't have such a theory. Nonetheless, I can still say that a market system of private law would work far more effectively than the state alternative, and that the standard objections to anarchy are unfounded.

There is widespread distrust of allowing the market to "determine" something as crucial as, say, prohibitions on murder. But "the market" is just shorthand for the totality of economic interactions of freely acting individuals. To allow the market to set legal rules really means that no one uses violence to impose his own vision on everyone else.[31]

Murder isn't wrong merely because it fails the market test; of course not. But its intrinsic immorality will find expression through market forces. We can all agree — contractually — to refrain from murder, and to abide by the decisions made by an arbiter should we be tried for such a crime. In this way, we know we are not violating anyone's rights.

Now, after we have reached such agreement and are secure in our lives, we can let the philosophers and theologians argue about why murder is wrong. Legal scholars offering a priori constructions of just law would certainly have a place in market anarchy; after all, their tracts might influence the judges' decisions. However, in this essay I focus on the market forces that will shape private law, not on the content of such law.[32]

Applications

So far I have concentrated on the crucial issues in a theoretical discussion of private law. Now I would like to illustrate the versatility of such a system in a wide variety of areas, and contrast its performance with the monopolized government alternative.

Product Safety

One of the most common charges against pure laissez-faire is that a completely unregulated market would leave consumers at the mercy of ruthless businessmen. We are told that without benevolent government oversight, food would be poisonous, television sets would explode, and apartment buildings would collapse.[33] It's true, such critics might concede, that in the long run, shady companies would eventually go out of business. But surely someone who sells a deadly hamburger should be immediately punished for this, on top of forfeiting future customers.

As with other areas of law, I believe the market would deal with these sorts of cases through contractual pledges. When a consumer bought something, part of the package would be a guarantee such as, "If this product causes injury, as determined by a reputable arbitration agency, the customer is entitled to the standard damages." And, just as individuals would likely need to be backed by a large insurance company before anyone would do business with them, so too would businesses need to be insured against possible customer lawsuits, if they wanted to attract customers.[34]

We immediately see that this system avoids the nightmare scenarios cooked up by proponents of government regulation. Let's take the case of air travel. The Federal Aviation Administration "guarantees" that airplanes have had proper maintenance, pilots are rested, etc. So customers don't need to worry about their planes crashing. In contrast, many people allege, under a free market customers would have to keep statistics on how many crashes each airline had, and they'd have to be experts in airplane maintenance to see which companies were best.

But this is nonsense. All a flier needs to do is make sure that when he buys a plane ticket, part of what he buys is a pledge (backed by an insurance company) saying, "If you are killed in a plane crash, our airline will pay your estate $y million." Now, since the insurance companies stand to lose millions if the planes of this airline crash, it is they who will hire trained inspectors, keep meticulous maintenance logs, etc. They would say to the airlines, "Yes, we will underwrite your contractual pledges to customers, but only if you follow our safety procedures, allow our inspectors to look at your planes, work out an adequate pilot screening process, etc., and if we catch you violating your agreement, we will fine you accordingly." Since they are out to maximize profits, the insurance company will gladly pay for preventive efforts if this will lead to a greater savings in expected payments of claims to those killed in a crash.

This stands in sharp contrast to the present system. The FAA too sets up guidelines, but what are its incentives? If there is a plane crash, the FAA itself will get more funding, since everyone will say the crash shows how awful the "free market" in airplanes is. Bloated government agencies always mismanage their resources, so that there will be too many midlevel managers and not enough inspectors. Most important, since there is no competition, there is no benchmark against which to compare the FAA's oversight. Some lowly mechanic might have a great idea to improve airline safety, but the bureaucratic FAA would take years to implement it.

Professional Licensing

Closely related to the area of product safety is professional licensing. Let's use the example of medicine. Without government regulation, many believe, patients would be at the mercy of quacks. Ignorant consumers would go to whatever brain surgeon charged the lowest price, and would be butchered on the operating table. To prevent this, the benevolent government must establish guidelines — backed up by guns — to limit those who enter the medical profession.

This of course is nonsense. Voluntary organizations would probably arise, allowing only qualified doctors into their ranks. Concerned consumers would then patronize only those doctors endorsed by reputable associations. Before undergoing risky procedures or ingesting prescribed drugs, patients would require contractual pledges for restitution in the event of injury. In this case, it is again the insurance companies who would make sure the doctors they were underwriting were in fact qualified. Since they'd stand to lose millions in malpractice suits, the insurance companies would be very careful when setting their standards.

Such a system would be far preferable to the present one. As it is, the American Medical Association is little more than a glorified union, which requires immense schooling and training to artificially restrict the number of doctors in order to drive up their salaries (and healthcare costs in general). Without its monopoly, the AMA would be unable to check the growth in "alternative" therapies, such as herbal, that sidestep the current cozy alliance of big pharmaceutical companies, hospitals, and the government.

One must also realize that the incentives of the Food and Drug Administration render it far too conservative: If people die because of a new drug that the FDA has approved, the FDA will be blamed. But if people die because the FDA has not approved a new drug, it won't be held accountable; the sickness itself will be blamed. Consequently, many potentially life-saving drugs are currently being withheld from dying patients. In a purely free market, patients would be allowed to take whatever drugs they wanted.

Gun Control

I realize that many libertarians find certain aspects of my system a bit unnerving. Without unconditional guarantees of abstract rights, it seems there would always be a danger of smuggling the state in through the back door.

Rather than dance around such issues, I'll give the best example I can think of to demonstrate the difference between the conventional libertarian approach and my own: gun control. As we'll see, I don't think my approach is inconsistent with the libertarian creed, but I do think it will (at least initially) make many libertarians uncomfortable.

The standard arguments over gun control go like this: Opponents say gun control will render people defenseless against criminals and leave citizens at the mercy of their government rulers; only when someone has actually used his gun against innocents can the law rightfully step in. Proponents of gun control, however, argue that this position is too dogmatic; surely some preventive measures are justified in the public interest.

As with most debates held within the context of a government legal system, I think both sides have legitimate points. Certainly we cannot trust the government to protect us once it has disarmed us. But on the other hand, I feel a bit silly arguing that people should be able to stockpile atomic weapons in their basement. (A strict interpretation of many libertarian arguments would mean just that.) Fortunately, the system of private law that I've described allows us to sidestep this apparent "tradeoff."

Recall that the penalties for injury and murder would be established by contractual pledges, underwritten by insurance companies. People allow Joe Smith onto their property because they know if he hurts someone, either he will directly pay the damages or his insurance company will. The insurance company makes its money by charging appropriate premiums, tailored to the individual client. If Joe Smith has been deemed guilty in the past of violent behavior, his insurance premiums will be accordingly higher.

But there are other factors that an insurance company would take into account when setting premiums, besides past behavior. And one of these factors would undoubtedly be: What sort of weapons does this client keep around the house? After all, if the insurance company is going to agree to pay, say, $10 million to the estate of anyone Joe Smith kills, the company will be very interested to know whether Smith keeps sawed off shotguns — let alone atomic weapons — in his basement. Someone who keeps such weapons is much more likely to harm others, as far as the insurance company is concerned, and so his premiums will be that much higher. In fact, the risk of a client who kept nuclear (or chemical, biological, etc.) weapons would be so great that probably no policy would be offered.

This approach is superior to the governmental one. Truly dangerous weapons would be restricted to individuals willing to pay the high premiums associated with their ownership; kids couldn't buy bazookas at the local K-Mart. On the other hand, there wouldn't be the slippery slope that there is now with all government gun control. We would never fear that all handguns would be banned, since the insurance companies would be out strictly to make profit, and it would be far more profitable to allow people to keep handguns and pay slightly higher premiums.[35]

As with all contracts under my system, those "regulating" guns would be completely voluntary, involving no violation of libertarian rights. The insurance company is not forcing people to give up their bazookas. All it is saying is this: If you want us to guarantee your contracts with others, you can't own a bazooka. The insurance companies are the just owners of their money, and it is thus perfectly within their rights to make such a request.[36]

This is far preferable to the government system, which has no accountability. If politicians ban guns and cause thousands of people to be victimized by crime, nothing happens to them. But if an insurance company makes unreasonable demands of its clients, they will switch to a different company and it will quickly go out of business.

Dangerous Criminals

The supposed tradeoff between individual liberty and public safety is also exemplified in the debates over legal "technicalities." Conservatives like to complain about cases where a known murderer is set free by a bleeding-heart judge, simply because the police coerced a confession or forgot to read the suspect his rights. Liberals (such as Alan Dershowitz) respond that although such cases are unfortunate, they are necessary to keep the police in line.

As with gun control, I am sympathetic to both sides in this debate, and again I think my system can avoid both sorts of absurdities. To see this, let's suppose that through some quirk, a clearly "guilty" murderer has technically not violated any contractual provisions. Or, suppose an arbiter — who would only be hearing murder cases because of past excellence in his rulings — for some reason makes an outrageous ruling, and finds someone innocent of murder despite overwhelming evidence to the contrary.[37]

Because he was technically acquitted, the murderer would not have to pay damages to the estate of his victim. However, the rules governing this episode would be quickly revised to prevent its recurrence; private companies would be under much greater pressure than monopoly governments in the face of such bad publicity.

There is another difference. Under a government system, someone acquitted on a technicality gets off scot-free. But under the private-law system I've described, the killer's insurance company could still increase the premiums they charged. It wouldn't matter whether their client had been actually convicted of a crime; their only concern would be the likelihood that he would be convicted (of a different crime) in the future, because then they'd have to pay the damages.[38]

This analysis also resolves the issue of parole. Although most crimes would involve financial restitution, rather than imprisonment, there would still be individuals who were too dangerous to be allowed loose. The insurance companies would determine this threshold. As long as a company were willing to pay for any damages a criminal might commit in the future, people would offer him work, let him rent a room, etc. Rehabilitation would thus be in the great financial interest of the companies, in order to increase their pool of paying customers.

On the other hand, truly dangerous individuals would not be "paroled." Right now, the government has psychologists and other "experts" decide when sex offenders and murderers should be let back on the streets. Since they have no accountability, these ivory-tower intellectuals often test out their theories on the hapless victims of recidivist criminals.[39]

Conclusion

This essay has outlined the mechanics of purely voluntary, market law. The main theme running throughout is that competition and accountability would force true experts to handle the important decisions that must be made in any legal system. It is a statist myth that justice must be produced by a monopoly institution of organized violence.

The arguments of this essay are admittedly incomplete; surely more thought is needed before a move to market anarchy becomes feasible. However, I ask that the reader resist the temptation to dismiss my ideas as "unworkable," without first specifying in what sense the government legal system "works."

Robert P. Murphy

Robert Murphy is an adjunct scholar of the Mises Institute, where he teaches at the Mises Academy. He runs the blog Free Advice and is the author of The Politically Incorrect Guide to Capitalism, the Study Guide to "Man, Economy, and State with Power and Market," the "Human Action" Study Guide, The Politically Incorrect Guide to the Great Depression and the New Deal, and his newest book, Lessons for the Young Economist. Send him mail. See Robert P. Murphy's article archives.

This article is excerpted from Chaos Theory, section 2, "Private Law" (2002; 2010). You can subscribe to future articles by Robert P. Murphy via this RSS feed.

Essay originally published on Mises.org here

Notes

[1] This essay is based on three articles originally featured on anti-state.com.

[2] More accurately, disputes will be handled relatively peacefully; force may occasionally be required. Although market anarchism is thus not pacifism, we note that true pacifism — the refusal to engage in violence — implies anarchism, since all state action is based on (the threat of) violence.

[3] In the original, "FREEDOM IS SLAVERY." George Orwell, 1984 (New York: Signet Classics, 1984), p. 7.

[4] A free society is one in which property rights are (generally) respected. The existence of a state — an institution that uses force to place itself above property rights — thus precludes freedom as we shall use the term.

[5] I hasten to note that the system of market law that I describe is not entirely congruent with the vision of some other anarcho-capitalist writers. They believe the "just" system of property rights is deducible axiomatically, and that objectively valid law will be discovered and enforced by private firms. For an excellent introduction, see Linda and Morris Tannehill, The Market for Liberty (New York: Laissez-Faire Books, 1984); and Murray N. Rothbard, For a New Liberty (New York: Collier, 1978).

[6] An appeals process might be included in the arbitration procedure, but then the big firm could just bribe those judges, too.

[7] For example, only some states have the death penalty.

[8] In this context, libertarian implies a respect for "natural" rights. The libertarian's ultimate credo is the nonaggression axiom, namely that it is illegitimate to initiate force. Although market anarchy (as I will describe it) does not rest upon libertarianism, I will argue that it is (largely) consistent with this philosophy. Divergences between the two are, I believe, points of weakness in the libertarian position.

[9] Even if it weren't literally signed every visit, the agreement would be understood implicitly.

[10] Of course, if someone tried to simply barge onto another's property, without agreeing to any contractual obligations, then the owner would be perfectly justified in using force to repel him. Although this default may seem unilateral, it would at least be codified and publicized. Later sections will deal with the problem of initially drawing up property boundaries.

[11] Many of these points were inspired by fruitful discussion with Matt Lasley, David Pinholster, Chris Redwood, Stephen Carville, Stephan Kinsella, and Dan Mahoney. However, the objections do not necessarily reflect the views of these thinkers.

[12] Such a statement brings to mind the horrors of identification papers and checkpoints. However, state abuses should not discredit the valid concerns of property owners. As argued most notably by Hans-Hermann Hoppe, individuals do not possess an inherent "freedom of movement." If owners wish to restrict the people who travel on their roads, that is entirely their prerogative. On the other hand, in an established anarchist society, customers wouldn't show ID every time they entered most stores, just as in our present society people don't draw up labor contracts every time they hire the neighbor's kid to mow the lawn.

[13] To repeat: under this system everybody would buy homicide insurance, just as right now surgeons buy medical-malpractice insurance; the insurance company is pledging to compensate the estate of anyone killed by its clients. Because the probability of an individual (with no prior record) being convicted of murder in the next year is very small, his premium would also be small. If the company's actuaries estimate that a potential client has, say, only a one in a million chance of killing in the next year, and the standard damages for murder are, say, $10 million, then the company would only need to charge roughly $10 per year to break even.

[14] As explained in section III, most property would have a clause in which all guests agreed to submit to arrest if the guests were "wanted" by a reputable arbitration agency.

[15] This statement does not hold for the systems of private law (elaborated by other anarcho-capitalists) in which agencies unilaterally punish anyone harming their clients. In such a system, the lack of a monopolist would create an additional theoretical problem for the advocate of private defense agencies. However, even here the incentives for a peaceful resolution of legitimate disputes are tremendous.

[16] The mob is also strengthened by unions, which (in their modern form) are anything but voluntary organizations.

[17] It may be true that currently, insurance companies are bureaucratic and overbearing. But I think this has more to do with their close relationship with the government legal system, rather than with their nature as such. Yes, insurance companies don't like paying damages, but people don't like going to work every day, either. This doesn't mean the free labor market isn't a viable system; if people are lazy, they get fired. And if an insurance company doesn't pay its claims, it will eventually go out of business.

[18] For the sake of argument, let us suppose (quite implausibly) that everyone agreed to sell his or her land to a single individual, who then became landlord of the entire population, and that as part of the lease, everyone agreed to give the landlord the power to "tax" earnings. Even so, this landlord would never set the tax rate above the "Laffer point," i.e., the point that maximized revenues. Because it is influenced by nonpecuniary motives, however, the modern state doesn't respect even this sensible rule.

[19] This device only works, of course, if at least one of the partners is concerned for the welfare of future children. Yet this should be sufficient for most cases, since surely very few couples dream of becoming abusive parents.

[20] I am purposefully skirting the question of whether parents would legally "own" their children. So long as a child voluntarily remained with his parents, "living under their roof," they could of course set any rules they wished. The only problem arises when a child runs away, and does not wish to return. I personally am sympathetic to the notion that so long as a child can support him- or herself, parents can't force the child to return home.

[21] These voluntary solutions would be far preferable to the government approach, in which ill-informed and often self-righteous "social workers" rip families apart and place children in the horrible foster-care system.

[22] This would not prevent others from forming a community in which abortion were legal, of course.

[23] My stance may appear slippery, but imagine that a Cuban economist advises Castro to abolish socialism and allow a free market to develop. Must the economist predict beforehand whether and how many shopping malls will exist under his proposal?

[24] For example, one firm might issue land titles for an entire city, but actually delegate the delimitation of the respective rights of two neighbors to a different firm specializing in residential affairs.

[25] The knowledgeable reader may notice that this objection — and its solution — are similar to the alleged infinite regress involved in a marginal utility explanation of money demand.

[26] The purist might object that this remedy is insufficient. After all, I am simply assuming that people know what the concept of a contract is. To this charge I plead guilty. As mentioned in the Foreword, my purpose in this essay is not to "prove" the ethical superiority of market law. Despite the occasional normative statement, I am really just describing the world I envision under market anarchy. And in such a world, I do not predict that people will have trouble adopting the convention of contracts (even without a proper philosophical definition and justification), just as I don't predict they will need to be versed in economic theory before using money.

[27] In a private legal system, there still would be publicized laws and adherence to precedent, for this would allow greater predictability in rulings and hence appeal to customers.

[28] Of course, the major hurdle of anarchism is to convince people that murder is wrong even when duly elected "representatives" order it.

[29] To illustrate: Suppose that the distribution of this book causes every US citizen to endorse market anarchism. Private firms would arise to codify the property titles that were previously regulated by government agencies. It would be "obvious" that people retained ownership of their homes (and mortgages), cars, etc. This basic framework of property would then allow for a voluntary, contractual solution to the more difficult problems, such as assigning titles to government housing projects (since both tenants and taxpayers might claim rightful ownership).

[30] The reader may consider this a poor example, since after all fouling is more flagrant in outdoor courts than in, say, an NBA game. But this is the point: There still is such a thing as a foul (and other rules) recognized by the transgressor in a pickup game; he will simply deny that he committed one. (For a different example, no player would claim that his shot should be awarded ten points.)

Now, the market solution to such ambiguity and bias, for games deemed important enough to warrant the extra cost and hassle, is to appoint official referees to apply the "law" (which they too unthinkingly respect). Notice that at no point is a violent monopoly needed to achieve this orderly outcome.

[31] Because I am not advocating pacifism, this accusation of violence may seem hypocritical. However, the state requires the threat of violence on admittedly innocent people. If a person (whom everyone agrees is not a criminal) started a legal or insurance firm that infringed on the state's monopoly, it would punish him.

[32] An analogy may be useful: For a variety of reasons, I oppose public schooling and advocate its immediate abolition. I am quite confident that private schools would provide excellent education for all children, rich and poor. Now, I say this even though I cannot construct an a priori theory of a proper education. Nonetheless, I am confident that the market system will be better than the state's approach, even though I cannot list the necessary and sufficient conditions of goodness (in this context). And of course, nothing guarantees that the market solution will be optimal; after all, if the parents in a certain town were evil or stupid, then market incentives would lead to (what we would consider) horrible curricula.

[33] I point out in passing that television sets did explode in the Soviet Union, and many apartment buildings did collapse in statist Turkey after a mild earthquake.

[34] If an individual liked to live dangerously, he'd be perfectly free to buy a computer from a firm that did not carry insurance. But if something went wrong, it would be much more difficult for him to get his money back. It would thus be in the great interest of most people to only do business with companies that had their contracts backed by large, reputable insurance companies.

[35] In fact, households with conventional firearms might enjoy lower premiums, if the insurance company thinks this will reduce the incidence of crime in the area enough to justify the incentive.

[36] To charge higher premiums to those who wish to own multiple weapons is no more unjust than the present practice of offering discounts to drivers for taking a driving-safety class, or to homeowners for installing an alarm system. If a particular insurance company is staffed by people who fear guns, then gun owners will shop around for a different insurance company.

[37] I stress that cases like this are going to happen under any system. I am not conceding anything by admitting such possibilities; rather, I am trying to show the strength of my approach by explaining its response to such cases.

[38] Again, this process does not involve a violation of anyone's rights. It no more discriminates against clients than the present practice of charging young males higher car-insurance premiums, even if their driving record is snow white. We don't need to fear a roundup of all mentally handicapped people, or all young black males, because such practices would not be profitable. If a certain individual were truly being charged a premium higher than he "deserved," he could shop around for a different insurance company.

[39] When I watch America's Most Wanted or read books explaining how the FBI catches serial killers, I am shocked by how many current murderers and rapists commit their crimes while on parole.