Without question, the legal system
is the one facet of society that supposedly requires state provision. 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 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. 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.
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
All actions in a purely free society 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 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
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.
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."
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.
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
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, 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.
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
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
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.
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
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 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 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
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
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.
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)
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.
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. 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.
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, 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. 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.
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.
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.
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. 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.
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.
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. I can, however, offer some
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
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.
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).
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. 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
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
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
"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; even rapists and murderers know
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. 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.
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.
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.
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.
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.
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. 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.
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
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.
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.
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
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
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.
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.
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
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.
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
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
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.
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
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
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
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
This article is excerpted from Chaos Theory, section 2,
"Private Law" (2002; 2010). You can subscribe to future
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Essay originally published on
 This essay is
based on three articles originally featured on anti-state.com.
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)
 In the
original, "FREEDOM IS SLAVERY." George Orwell, 1984 (New
York: Signet Classics, 1984), p. 7.
 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
 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).
 An appeals
process might be included in the arbitration procedure, but then the big firm
could just bribe those judges, too.
 For example,
only some states have the death penalty.
 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.
 Even if it
weren't literally signed every visit, the agreement
would be understood implicitly.
 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.
 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.
 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.
 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.
 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
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.
 The mob is
also strengthened by unions, which (in their modern form) are anything but
 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.
 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.
 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.
 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
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.
 This would
not prevent others from forming a community in which abortion were legal, of
 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?
 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.
 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.
 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.
 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.
 Of course, the
major hurdle of anarchism is to convince people that murder is wrong even
when duly elected "representatives" order it.
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).
 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.)
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.
 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
 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.
 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
 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
 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.
 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.
 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.
 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.
 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.