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Nearly the entire spectrum of political thought includes the implicit assumption that the State is the institution best suited for the production, interpretation, and enforcement of law and order. In fact, the variance in most political discourse is confined to which laws the State ought to produce and how they should be interpreted and enforced. The questions often left unasked, though begged by traditional political thought: “Is the State the institution best suited for these tasks? If not, what is the superior alternative?” will be examined. This chapter will focus on a systemic evaluation and critique of the State as a monopolistic producer of law and less on the content of present legal systems. As such, this analysis will remain pertinent to any State-administered legal system despite its ever changing law code and/or legal procedures.[1]

The Problem of Social Order

Because the demand for various resources exceeds their availability, norms must be established to promote their economic and just use. As men are neither saints nor angels, disputes over resource ownership abound. Thus, a legal system based on property norms serves as the mechanism by which various disputes may be settled in a predictable and just manner. Recall that violent interpersonal conflict is only possible insofar as scarcity exists. Whether it is two men fighting over a beer, a mugger and his victim, or a breach in contract, every violent dispute has ultimately to do with the allocation and/or control over some scarce good (whether of one’s own body or external good). The solution to the problem of social order, then, requires the formulation of a rational set of property rights such that, if followed, would negate the emergence of any and all violent conflict.

The Solution to Social Order

The solution to social order may be summed up in two words: private property. Private property is a norm and, as such, works towards facilitating the avoidance of interpersonal conflict. The way in which we compare the efficacy of any given norms will be by examining whether or not, and to what extent, they generate or avoid conflict. Hoppe cogently sums up why the norm of private property in particular is best suited for conflict avoidance:

Contrary to the frequently heard claim that the institution of private property is only a convention, it must be categorically stated: a convention serves a purpose, and it is something to which an alternative exists. The Latin alphabet, for instance, serves the purpose of written communication and there exists an alternative to it, the Cyrillic alphabet. That is why it is referred to as a convention. What, however, is the purpose of action norms? If no interpersonal conflict existed — that is: if, due to a prestabilized harmony of all interests, no situation ever arose in which two or more people want to use one and the same good in incompatible ways — then no norms would be needed. It is the purpose of norms to help avoid otherwise unavoidable conflict. A norm that generates conflict rather than helping to avoid it is contrary to the very purpose of norms. It is a dysfunctional norm or a perversion. With regard to the purpose of conflict avoidance, however, the institution of private property is definitely not just a convention, because no alternative to it exists. Only private (exclusive) property makes it possible that all otherwise unavoidable conflicts can be avoided. And only the principle of property acquisition through acts of original appropriation, performed by specific individuals at a specific time and location, makes it possible to avoid conflict from the beginning of mankind onward, because only the first appropriation of some previously unappropriated good can be conflict-free — simply, because — per definitionem — no one else had any previous dealings with the good.[2]

Before any talk of legal punishment, however, it should be made clear that a victim is not obliged to punish or press charges against his aggressor. However, the following discussion will examine the extent to which a given victim may justifiably punish his aggressor. In a free market or voluntary society, it is likely that many victims would prefer a monetary or some other material restitution from their aggressors, over inflicting physical harm on them. Such a society, being largely composed of voluntary and peaceful relations, will probably be more opposed to violence as an end in itself than our current environment (even when justified). Finally, monetary or material restitution permits someone a wider range of options to satisfy his desires, whereas imposing physical punishment on a perpetrator constitutes only one fleeting means of satisfaction.

There is an important distinction between defense and punishment. The former has to do with what is justified in the defense of one’s person or property as it is being violated, while the latter has to do with applying force/threats after the fact when the perpetrator is no longer actively violating property rights. One may justifiably use as much force as necessary to stop a person who is actively committing aggression, no matter how trivial the violation may seem. For instance, if someone were to trespass on another’s property and refuse to leave despite the owner’s requests, then the owner would be justified in using any level of force against this trespasser to defend his property. Though, technically, the owner would be justified in killing this trespasser, this does not mean that doing so would be without consequence. The consequences may include an increase in the owner’s defense/insurance premiums, and he may face some degree of social ostracism for the perceived excessive use of force (if someone commits a justified act, this merely entails that a violent response to said act would be unjustified or criminal). Anyone may ostracize anyone else for whatever reason they deem appropriate, such as killing trespassers. Thus, harsh behavior may be tempered by social/economic pressures.

Punishment

Defending oneself physically, however justifiable, is not sufficient for the attainment of justice. Prudence demands knowing what consequences may be justifiably imposed ex post on someone who commits an injustice and violates property rights. Violations of property rights are unique from any other activity in that they may justifiably be met with physical force or threats thereof. Stephan Kinsella provides what is known as the “Estoppel Justification for Punishment” as a proof for why such violent or physical recourse may be warranted. To clarify, the term estoppel refers to a “common-law principle that prevents or precludes someone from making a claim in a lawsuit that is inconsistent with his prior conduct…”[3] To show the relevance this principle has on a justification for punishment, Kinsella states:

In short, we may punish one who has initiated force, in a manner proportionate to his initiation of force and to the consequences thereof, exactly because he cannot coherently object to such punishment. It makes no sense for him to object to punishment, because this requires that he maintain that the infliction of force is wrong, which is contradictory because he intentionally initiated force himself.[4]

He then uses this Estoppel approach to demonstrate why defensive force and punishment may be justifiably employed in response to threats made against one’s body or property:

This method of analyzing whether a proposed punishment is proper also makes it clear just why the threat of violence or assault is properly treated as an aggressive crime. Assault is defined as putting someone in fear of receiving a battery (physical beating). Suppose A assaults B, such as by pointing a gun at him or threatening to beat him. Clearly B is entitled to do to A what A has done to B—A is estopped from objecting to the propriety of being threatened, i.e. assaulted. But what does this mean? To assault is to manifest an intent to cause harm, and to apprise B of this, so that he believes A (otherwise it is something like a joke or acting, and B is not actually in apprehension of being coerced). A was able to put B in a state of fear by threatening B. But because of the nature of assault, the only way B can really make A fear a retaliatory act by B is if B really means it and is able to convince A of this fact. Thus B must actually be (capable of being) willing to carry out the threatened coercion of A, not just mouth the words, otherwise A will know B is merely engaged in idle threats, merely bluffing. Indeed, B can legitimately go forward with the threatened action if only to make A believe it, so that he is actually assaulted. Although A need not actually use force to assault B, there is simply no way for B to assault A in return without actually having the right to use force against A. Because the whole situation is caused by A’s action, he is estopped from objecting to the necessity of B using force against him.[5]

One is only bound to respect the rights of another so long as this person reciprocates. The right of self-defense allows those under attack to respond with violence. As one is not required to suffer abuses to his body or property, but can justifiably defend himself from such abuses, it follows that he must regard an aggressor as having lost or relinquished some claim of peace and non-invasion. By his own conduct, such an attacker demonstrates a desire for aggression over agreement, and, as such, tarnishes his status as an innocent party. The concept of property rights itself entails that physical force may be used against those who violate one’s just possessory claims. This is the very characteristic that separates rights from non-rights.

If defensive violence is justified, perhaps violence for restitution or for retributive reasons is as well? If so, what would its limits be? A hallmark of justified punishment has long been meeting the criteria of proportionality. What is meant by proportionality? It would seem at first glance that what is truly proportional is purely subjective, and admittedly, there is significant grey area in this realm. However, there are some situations in which we may be able to objectively identify an excessive amount of force used as punishment for a particular property rights violation. For instance, if person B steals person A’s pack of bubble gum, then executing person B as punishment for this crime would be clearly disproportionate. Other than an intuitive notion that this would be excessive, we may also be able to rationally defend this position.

At the very least, person A would be justified in taking back the pack of gum from B, as well as some additional desired goods for the inconvenience and violation that person A was made to suffer. It is because person B initiated this force upon person A that person A would be justified in taking more from person B than the identical pack of gum he stole, for this would only restore person A to the position he was in before the incident, however, it would not compensate him for the subsequent inconvenience and violation he had to endure in the interim. Additionally, we may determine that executing person B for this petty theft would be excessive, because this would involve the absolute destruction of person B’s rights (for life is a necessary prerequisite of rights) as punishment for an act which violated only a portion of person A’s rights. This distinction is more than arbitrary sentimentality; it reveals the categorically scalar nature of rights. The unjustified ending of a life is a more egregious infraction of justice than is the pilfering of sugar-free Chiclets. B’s minor rights violation only warrants minor force to be used against him, contrary to his victim’s preference to impose capital punishment.

However, the degree to which stealing a pack of gum harms person A may differ from how much it harms person C, as they may each value the gum differently for whatever reason. As we cannot compare value interpersonally, it is impossible to assess the degree to which people gain and lose from actions.[6] As a result of such incongruities in valuation, the punishment person A may be justified in imposing on B may vary in regards to how person C may punish person B for the same act. (The level of psychological trauma A and C suffered from this encounter will also be relevant when determining to what extent they may justly apply punishment). Of course, as it is impossible to determine exactly how much one values a thing, determining a proper punishment for B will be difficult. If person A and person B cannot come to a mutually agreeable resolution on their own regarding compensation, they may solicit outside opinion for their case, in a process known as arbitration.

Decentralized Law Finding Systems vs. Centralized Legislation

For this section, we will compare and contrast the general characteristics of decentralized legal systems, such as common law and private law, with legislation. Legislation, or law by decree, is by its nature less predictable than decentralized legal systems whose development is limited to extrapolations from previously established legal principles. As a result of the comparatively less predictable nature of the legislative legal system, fewer contracts are made owing to the uncertainty of their enforcement. Stephan Kinsella discusses the implications of this decrease in predictability under a centralized legislative system:

Another pernicious effect of the increased uncertainty in legislation-based systems is the increase of overall time preference. Individuals invariably demonstrate a preference for earlier goods over later goods, all things being equal. When time preferences are lower, individuals are more willing to forgo immediate benefits such as consumption, and invest their time and capital in more indirect (i.e., more roundabout, lengthier) production processes, which yield more or better goods for consumption or for further production. Any artificial raising of the general time-preference rate thus tends to impoverish society by pushing us away from production and long-term investments. Yet increased uncertainty, which is brought about by a legislation-based system, causes an increase in time-preference rates because if the future is less certain, it is relatively less valuable compared to the present.[7]

With this relative increase in time preference and decrease in prosperity, there comes an associated increase in crime. This general increase in time preference makes crime more appealing as it serves to satisfy more immediate desires. Accordingly, the prospect of potential punishment will be less of a tempering factor for one with a higher-time preference – i.e., one who places a high premium on current consumption versus future consumption.

In addition to this, an arbitrary edict-based legislative system lacks access to a pricing mechanism, which would otherwise serve as an invaluable indicator of the effectiveness or desirability of a law relative to consumer or societal preference. With a pricing mechanism, one can judge such things by measuring their profitability. However, edict-based legislative systems are generally promoted by States which are funded in a compulsory manner (taxation). Thus, whether or not a certain law or set of laws is more or less desired by the public is comparatively more uncertain and difficult to determine. Without such institutionalized aggression, such things would be relatively easier to apprehend as one could check his balance sheet to verify customer satisfaction. Hence, the pricing mechanism enables such a decentralized free market legal system to continually refine and reinterpret various legal codes more rationally relative to consumer preference. Not only does the pricing mechanism serve as an indicator for what type of law is favored, but also how much it is favored over alternative attempts to produce law. Moreover, in edict-based legislative environments there is bound to be an over/under production of law in various fields as there is no rational feedback that provides data comparable to a profit and loss system.

Legislative law systems also tend to be inferior as the legal system is comprised of many disparate laws unrelated to any rationally justified principles, and as such, are less credible compared to decentralized legal systems which tend to extrapolate from organically established legal principles. Furthermore, the unbridled scope of what legislative law systems may cover tends to result in an over-expansion of legal codes. One consequence of this ever-expanding legal code is that it creates more de jure criminals. By definition, as the law expands to constrict greater amounts of human conduct, more people will be rendered and prosecuted as criminals. As more and more people are said to be engaging in criminal behavior, credibility will continue to be lost by the legal system, especially if such outlawed behavior does not constitute aggression against other people or their property. Worse yet, such a system makes virtually everyone vulnerable to prosecution by the State whenever its agents deem fit. Of course, this threat of impending punishment serves as an effective tool of intimidation used for ensuring obedience to State rule. Kinsella summarizes the advantages of a decentralized legal system:

… [T]he position of common-law or decentralized judges is fundamentally different from that of legislators in three respects. First, judges can only make decisions when asked to do so by the parties concerned. Second, the judge’s decision is less far-reaching than legislation because it primarily affects the parties to the dispute, and only occasionally affects third parties or others with no connection to the parties involved. Third, a judge’s discretion is limited by the necessity of referring to similar precedents. Legal certainty is thus more attainable in a relatively decentralized law-finding system like the common law, Roman law, or customary law, than in centralized law-making systems where legislation is the primary source of law.[8]

The State as Provider of Law and Order

Before discussing the State’s role in the provision of law and social order, a proper definition of the State is required:

The State, according to the standard definition, is not a regular, specialized firm. Rather, it is defined as an agency characterized by two unique, logically connected features. First, the state is an agency that exercises a territorial monopoly of ultimate decision making. That is, the state is the ultimate arbiter in every case of conflict, including conflicts involving itself. It allows no appeal above and beyond itself. Second, the state is an agency that exercises a territorial monopoly of taxation. That is, it is an agency that unilaterally fixes the price that private citizens must pay for the state’s service as ultimate judge and enforcer of law and order.[9]

Put more simply, the State is that institution which enjoys a monopoly over the production, interpretation, and enforcement of law. In addition to this, the State also has the sole right to force its citizens to pay for its services, the price and scope of which are also dictated by the State and are subject to change at its discretion. The resulting conflict of interest and moral hazard from a single institution being equipped with these exclusive legal privileges should be readily apparent. Hoppe brilliantly summarizes the logical incoherence of holding both the belief that monopolies are bad for the consumer, and that law and order must be exclusively provided by the State:

First of all, among economists and philosophers two near-universally accepted propositions exist: 1) Every “monopoly” is “bad” from the viewpoint of consumers. Monopoly is here understood in its classic meaning as an exclusive privilege granted to a single producer of a commodity or service, or as the absence of “free entry” into a particular line of production. Only one agency, A, may produce a given good or service, X. Such a monopoly is “bad” for consumers, because, shielded from potential new entrants into a given area of production, the price of the product will be higher and its quality lower than otherwise, under free competition. 2) The production of law and order, i.e., of security, is the primary function of the state (as just defined). Security is here understood in the wide sense adopted in the American Declaration of Independence: as the protection of life, property, and the pursuit of happiness from domestic violence (crime) as well as external (foreign) aggression (war). Both propositions are apparently incompatible with each other. This has rarely caused concern among philosophers and economists, however, and in so far as it has, the typical reaction has been one of taking exception to the first proposition rather than the second. Yet there exist fundamental theoretical reasons (and mountains of empirical evidence) that it is indeed the second proposition that is in error.[10]

Hoppe demonstrates that the State is not immune from the principles of economics. The exercise of a State monopoly over the provision of any service will lead to the same inefficiencies and destruction of wealth as any other monopolistic operation. The second major disadvantage of State provided law and order is the lack of contract:

If one wanted to summarize in one word the decisive difference and advantage of a competitive security industry as compared to the current statist practice, it would be this: contract. The state, as ultimate decision maker and judge, operates in a contract-less legal vacuum. There exists no contract between the state and its citizens. It is not contractually fixed, what is actually owned by whom, and what, accordingly, is to be protected. It is not fixed, what service the state is to provide, what is to happen if the state fails in its duty, nor what the price is that the “customer” of such “service” must pay. Rather, the state unilaterally fixes the rules of the game and can change them, per legislation, during the game. Obviously, such behavior is inconceivable for freely financed security providers. Just imagine a security provider, whether police, insurer, or arbitrator, whose offer consisted of something like this: ‘I will not contractually guarantee you anything. I will not tell you what specific things I will regard as your to-be-protected property, nor will I tell you what I oblige myself to do if, according to your opinion, I do not fulfill my service to you — but in any case, I reserve the right to unilaterally determine the price that you must pay me for such undefined service.’[11]

Finally, under a Statist legal system, citizens are much less incentivized to take an active role in shaping the rules which govern them. The reason for this is simple: one’s vote has relatively little impact on determining the laws that will govern him, and the cost of maintaining an informed vote is high. To vote according to one’s interests, one must determine what policies are actually in line with his interests and who represents these policies.

The relatively high cost of conducting the research and introspection required to achieve this tends to be greater than the impact a person’s single vote will have in an election. Thus, he chooses to remain in a state of rational ignorance, as the costs of alleviating his ignorance are not worth the benefits of him doing so.[12] Furthermore, any representative may change his stance at any time with little to no recourse, despite his campaign promises. This representative is not bound by any contract to exercise or manifest his promised course of action. To further compound the issue one may only like polices 1, 3, 5, and 7 of representative A and policies 2, 4, 6, and 8 of representative B. In such a situation, one is put in a position where he has to accept an unfamiliar and diverse basket of policies depending on the unique opinions of the representative he chooses. This is converse to the situation in which one is permitted to choose between a variety of law providers and insurers under free competition. In the latter scenario, his choices will have a far greater impact on the “laws” that rule him than they would under a State system.

Speculations on Free Market Law and Order

Specifically regarding the problem at hand: in a private-law society the production of security — of law and order — will be undertaken by freely financed individuals and agencies competing for a voluntarily paying (or not-paying) clientèle, just as the production of all other goods and services.[13]

In a free market society, the functions of security, auditing, media, consumer evaluations, insurance, investigation, arbitration, and law enforcement will be provided in tandem in order to maintain the protection of the consumers that finance them. Highly contingent and specific details cannot be determined beforehand, however. The particular configuration of agencies and their functions, to what degree competition will exist, and how many agencies there may be in a given geographic area cannot be known in advance. Though the possibilities are endless, a few remarks may be made regarding how economic incentives would structure organizations within this industry. Given the obvious concerns of bribery, moral hazard, and various conflicts of interest, it behooves the reader to scrutinize every proposal offered.

Emerging from the accumulation of billions of minds’ worth of creativity is a spontaneously-ordered legal system that adjusts to fulfill the ever changing desires of families, communities, businesses, and individuals: its customers. As organic legal systems emerge to replace State-sanctioned legislatures and courts, there will be a strong diversity of practices in different regions. Over time, improvements in technology and organization will further develop the success of private-law structures empowering everyone to command and act in accordance with justice. The following scenario will be used to illustrate some of the general characteristics of such a system.

Bob desires two things: security and, in the cases where his liberty is violated, restitution. He wants to employ human and material goods to defend himself from attempts on his liberty/property, and he also wants a mechanism that restores him to his natural state before the violation. To accommodate this demand, competing defense insurance agencies (DIAs) offer Bob their services of protection and indemnification in exchange for monthly premiums commensurate with his security risk. Bob has several firms from which to choose and makes his decision according to which DIA has a reputation and plan that suits his individual needs. Bob chooses Shield, a DIA renowned for its low prices, harm prevention, and excellent history of providing solid restitution for its clients. He chooses the basic plan which covers acts of mugging, assault, and murder in most areas of his hometown. Shield offers Bob the option of carrying a tracking and panic device with him at all times, in order to more effectively offer its assistance during emergencies. In exchange for Bob’s willingness to carry such a device, Shield agrees to lower his monthly premium for its services.

One day, while riding his bike to work, Bob is confronted by a man demanding his bicycle at knife-point, who then rides away with it. Using the device, Bob immediately alerts Shield, but, unfortunately, by the time they arrive, the mugger is long out of sight. Per Bob’s contract, Shield covers the cost of Bob’s bike as well as additional compensation for his troubles and trauma resulting from the incident. As a means to mitigate harm to its reputation and to recover the funds that it had given out to Bob, Shield commences an investigation. After some detective work, Shield gathers enough evidence to confidently name Terry as the mugger. Shield agents then approach Terry instructing him to pay the amount they had given to Bob, along with the expenses of the investigation. Terry refuses, claiming he is innocent. Because Shield competes on reputation as well as price, it hears Terry’s case and cross references his testimony with the evidence it gathered earlier. However, despite Terry’s testimony, Shield still believes him to be guilty.

In the case that Terry has no DIA coverage, Shield may contract with a third party arbiter to review the evidence and testimony of each party and come to its own verdict. Contrary to a legislative system, there is no single law pertaining to Terry’s conduct. Anyone is free to enter the judiciary business and offer verdicts. The type of standards such arbitrators and judges use are tempered by consumer preference. If they are seen as out of touch with justice, then this will have a negative impact on this particular arbitration agency’s desirability and reputation.

Terry would be encouraged to participate in such arbitration, to make his voice publicly and explicitly heard, so as to make the ruling more legitimate. If Terry refuses to participate, Shield may offer alternative arbitration agencies to handle the case in the hopes that Terry would reconsider. In the case that Terry adamantly refuses to go to any arbitration, Shield may proceed with arbitration without him and he would be tried in absentia. Shield is willing to go through all this trouble to encourage Terry’s participation, because it would bolster the legitimacy of any subsequent ruling on the case. Shield will also be incentivized to offer Terry arbitration through agencies which have a reputation for impartiality, fairness, and expertise in the matter concerned for similar legitimacy considerations. In the event the trusted arbitrator concludes that Terry is not guilty, Shield will compensate him for his troubles associated with these false allegations. It is this prospect of reputational damage and financial loss which incentivizes DIAs not to accuse people of crimes without substantial corroborating evidence.

In the case that the arbiter rules that Terry is guilty, Shield will insist that Terry pay up. If Terry is able, but refuses, then Shield – with its large established name and influence – may contract with his employer to garnish his future wages with interest until Terry’s debt is satisfied. If Terry is able to pay, but earns no outside income (or if the employer is unwilling to permit the garnishing of his wages), then Shield may confiscate a portion of his property and auction it off as a means to satisfy his debts and the costs of the auction. If Terry is unable to pay, then Shield may have him work at a securitized camp until his restitution is paid off. To avoid reputational damages and accusations of inhumane conduct, Shield will have the incentive to ensure that such camps meet certain safety standards. If Shield neglects to ensure that Terry is sent to a safe camp, then its competitors, humanitarian organizations, or other third party evaluators would be happy to expose Shield as a cruel or negligent DIA. This would then result in a loss of legitimacy and therefore business for Shield. Thus, it is the prospect of these consequences that will compel Shield to ensure Terry is indeed sent to a humane and safe work camp. Of course, at any time throughout this process, Terry may have a third party pay off his debts to Shield in whole and relieve him of his work camp duty.

In addition, it needn’t be Shield that runs the work camp; they may delegate it to subcontractors. The work camp selected by Shield will also be tempered by the reputational/economic considerations listed above. These same considerations would equally apply to the firms which manage the work camps, deterring them from employing draconian measures or refusing to maintain a safe environment. To demonstrate the safety of the environment and the humane treatment of its inhabitants, the work camps would likely welcome regular and random third party audits of their facilities and practices. If the work camp passes the inspection, it may then be certified by this third party auditor as a humane and safe environment. This certification is only valuable insofar as the agency granting it withstands bribery or other forms of foul play, thus any attempts for the work camp agents to pay off the auditors will likely be futile. In fact, any act intended to bribe the auditors would probably earn the camp an automatic failing grade. Finally, regardless of whether or not Terry pays off his debt, Shield will pass his information along to a criminal records bureau which will document his criminal actions on an archived record.

This sort of practice occurs in Las Vegas between different casinos. They may black list a person caught cheating and spread word to other casinos so as to create a reciprocal relationship wherein the other casinos will act in kind to continue this profitable and cooperative relationship. So, too, and for the same reasons, the various DIAs will want to share with each other information regarding risky individuals, so that they may be able to more effectively gauge security risks and require commensurate payment for their insurance. The criminal records bureaus will distinguish themselves from one another on their ability to verify the validity of criminal verdicts against individuals in an impartial manner. The less scrutiny such a records bureau would use against such verdicts, the less credible its records would become. Thus, such bureaus will likely review the investigative and judicial proceedings used on a particular person against their own standards prior to making the requested changes to this person’s record.[14] An additional benefit of this process is that it grants credibility to both the DIAs and the arbitration agencies as passing such an audit further legitimizes these institutions and their practices. The criminal records also serve the purposes of enabling the DIAs to more accurately determine premiums for new clients and whether they should even provide a prospective client with coverage at all.

People who are prone to criminal activity are more likely to be engaged in violent disputes with others, costing the DIA more resources to insure than peaceful people. Moreover, many residential or commercial areas may choose to not allow a person with a violent criminal past on their premises at all. If applied generally or universally, it would leave this person limited to roaming more dangerous or undeveloped areas, which would, in turn, cause his DIA coverage to become ever more expensive.

Of course, such areas would not want to be overly discriminatory (namely commercial areas), for these people are, after all, potential customers, suppliers, or supporters. For economic reasons perhaps, they may invite, hire, or trade with former criminals to the extent they demonstrate value and/or have participated in some form of reputable rehabilitation. Participating in such voluntary rehabilitation may also prompt other DIAs to offer recovering criminals lower premiums as well. The preceding scenario is an example of social and economic pressure, each of which serves as powerful deterrents to criminal and unsavory behavior.

Back to our scenario with Bob and Terry: assume that Terry does have DIA coverage. In this case, Terry may notify his DIA (Hammer Defense) that Shield is demanding restitution for a falsely-accused crime: mugging Bob. At this point, Hammer Defense may confer with Shield and its findings as well as conduct an investigation of its own into the matter. If, upon reviewing the evidence of its own investigation and cross referencing it with evidence gathered by Shield, it determines that Terry is indeed guilty, then Hammer Defense will compel its client to pay or drop his coverage.

Should Terry refuse and subsequently lose coverage, then his protection would be limited to what he can physically provide himself and what his resources can directly purchase. If, however, Hammer Defense comes to the conclusion that Terry is not guilty, – or that there is insufficient evidence to prove his guilt – it will likely share its findings with Shield. After reviewing contrary evidence, if Shield remains unconvinced, what is needed is arbitration: both parties will each agree upon a third party and be bound to its decision. As inter-agency disputes may occur frequently, there will tend to emerge a habit of multiple DIAs agreeing in advance, by contract, who will mediate or arbitrate which disputes. Suppose, however, that the arbitration agency used decides Terry is guilty, and, despite industry arrangements, years of goodwill, and most importantly, contractual obligations, Hammer Defense reneges on its agreement and refuses to abide by the arbitration ruling. What then? Will violence be used? No, most likely not. Instead, Shield along with the arbitration agency will threaten to publicize Hammer Defense’s welching nature if it continues to be non-compliant. If Hammer Defense refuses to abide by the ruling even still, Shield and the arbitration agency could execute their threat, causing Hammer Defense to lose credibility and, by extension, business and power.

The simpler situation to observe would be if Bob and Terry were each clients of the same DIA. Prior to gaining coverage, each client would likely agree to abide by the ruling(s) of a given arbitration agency(s) to be used in the case a criminal dispute arises between himself and another person covered by the same agency. Alternatively, for the sake of saving costs for itself and the consumer, the DIA may offer its clients the option of allowing it to make the ruling itself as opposed to outsourcing to a third party arbitrator. In their coverage agreements, the clients may also sign off on which arbitration agencies will be used should one enter into a dispute with a client of a separate DIA. In a society populated by competing insurance and arbitration agencies, the “laws” to which any given person is subject will essentially be the standards used by the reviewing arbitration agency when rendering a verdict. For this reason, it is in the DIA’s best interest to choose agencies whose standards are desirable to its clients. Some people, for instance, may never want to be subject to capital punishment. Of course, such individuals may not be able to live under the exact set of laws he would like because DIAs would still have to come to agreeable terms with each other in order to remain viable. However, the customer would undoubtedly have a much larger influence on choosing the governing principles he prefers than under a legislative system.

A client of DIA “X” may be under a different set of laws than a client of DIA “Y” due to the different preferences for law desired by customers of DIA “X” and DIA “Y” respectively. It is the preferences which guide the various DIAs to contract with those arbitration agencies that, in turn, produce the law that is most aligned with their customers’ preferences. Perhaps customers of DIA X would be willing to pay more for their coverage if DIA X can ensure they will never face the death penalty by only contracting with those arbitration agencies that refuse to impose it. Supposing this “no-death” stipulation is DIA X’s largest concern, it will be willing to expend many resources to assure its customers they will never face the death penalty when negotiating with other DIAs regarding the arbitration agencies to be used in resolving disputes between their respective clients. An alternative to expending resources to secure favorable arbitration agencies may be for DIA X to compromise on other legal areas that are less significant to its interests, but are more significant to DIA Y or DIA Z. The reason different people may live under different laws is that their respective DIAs will be bargaining with one another on behalf of different sets of consumer preferences. The arbitration agency used to settle the disputes between customers of DIA Y and DIA Z may differ from the arbitration agency used to settle such disputes between customers of DIA Y and DIA X. Once more, this would be due to the fact that differences in their respective customer preferences for law will have caused them to ordain different arbitration agencies to settle disputes between their own clientèle and others.

Additionally, the DIAs will want to adopt policies which are most economically able to prevent conflict to ensure the greatest amount of profit. Thus, promoting the principles of peace and respect for private property will be very important. A society flourishing in peace and productivity will encourage two profitable effects: 1) Higher productivity implies there is simply more value for insurance and defense agencies to defend, growing their coverage, and; 2) Peace and prosperity implies fewer people are resorting to criminal and aggressive behavior. As such, any arbitration agency which frequently rules counter to the norm of private property would likely run out of business. There would be no legitimate defense agency willing to abide by terms contrary to respect for private property. Those norms which contradict that of private property only serve to generate conflict. Thus, the market’s pursuit for an efficient and just legal system will likely produce one which is consistent with private property and the non-aggression principle.

Advantages of the Private Provision of Law and Order

In contemporary society, people are instructed and trained not to attempt to defend themselves, but to rely on State-provided monopoly defense agencies. Conversely, in free markets, self-defense practices will not only be permitted, but encouraged. After all, the better one may defend himself, the less risk he bears. As such, clients who can demonstrate that they have the means and ability to defend themselves – perhaps through some form of certification process – will likely be able to secure lower premiums from their DIAs. Furthermore, in a comparatively better armed society, there would be far less crime as the cost of engaging in criminal behavior would be relatively higher than in our current environment where weapon ownership is significantly abridged. Competition is another obvious benefit of such a system:

First, competition among police, insurers, and arbitrators for paying clients would bring about a tendency toward a continuous fall in the price of protection (per insured value), thus rendering protection increasingly more affordable, whereas under monopolistic (statist) conditions the price of protection will steadily rise and become increasingly unaffordable.[15]

A multiplicity of private defense firms is beneficial as they will compete not only on price, but also on the basis of the quality of their services. What constitutes quality may be comprised of some of the following factors:

[1] Emergency response times

[2] Rigor of third party auditing

[3] Diplomatic acumen

[4] Crime prevention

[5] Investigative and executive prowess

[6] Contractual relations with reputable and desirable judicial (arbitration) agencies, etc.

Through competition, an efficient division of labor would abound and tend to weed out inefficient security firms and arbitration agencies, freeing up land, labor, and capital to be used by more efficient agencies of this industry or any other. It is this process which allows these services to evolve according to the ever changing desires of the consumer and development of technology. This economization produces a sort of spontaneous order that no central planner could ever hope to emulate.

Because these services will be privately provided on the marketplace, a pricing mechanism will manifest that enables entrepreneurs to rationally calculate ever-more optimal allocations of resources. Losses imply that resources are being combined in value-destroying ways, and vice versa with profits. The advantage of having access to such a pricing mechanism is that it yields a much more productive output of service and quality:

… [I]n a system of freely competing protection agencies, all arbitrariness of allocation (all over- and underproduction) would disappear. Protection would be accorded the relative importance that is has in the eyes of voluntarily paying consumers, and no person, group, or region would receive protection at the expense of any other one. Each and every one would receive protection in accordance with his own payments.[16]

The incentive structure of DIAs is also quite different from State agents, in that the members of a reputable insurance firm have a vested financial interest in preventing crime, apprehending criminals, and recovering stolen loot. If a DIA is unable to prevent a crime, or to apprehend the criminal responsible for a given crime, then it will have to bear the total cost of restitution to its affected client, resulting in financial loss and reputational damage.

Such a private law system would have a larger peace promoting effect than its State-administered counterpart. This is largely due to the fact that private institutions are not able to externalize the high costs of aggression onto its customers in the same way the State can. Private businesses are typical economic actors; they and consumers alike are governed by the law of demand. Higher prices for security services – to finance increased aggression – translates into fewer sales as consumers begin to purchase said services elsewhere. In contrast, no matter how high the cost of law and security becomes under State rule, its corner on the marketplace is largely unaffected since it has the legal authority to force its citizens to pay, while at the same time artificially suppressing competition with threats of brutality and imprisonment. Conversely, a private institution would have to worry about the loss of business resulting from the increased expenditures and reputational damage associated with its aggressive conduct, along with legal liability.

An alternative concern for DIAs would be the prospect of their clients engaging in provocative behavior or vigilantism. Such behavior would likely be discouraged as it tends to be messy, costly, and more out of line with justice than other more civilized means (sorry Batman):

… [E]very insurer must restrict the actions of his clients so as to exclude all aggression and provocation on their part. That is, any insurance against social disasters such as crime must be contingent on the insured submitting themselves to specified norms of civilized, nonaggressive conduct. Further, due to the same reasons and financial concerns, insurers will tend to require that their clients abstain from all forms of vigilante justice (except perhaps under quite extraordinary circumstances), for vigilante justice, even if justified, invariably causes uncertainty and provokes possible third-party intervention. By obliging their clients instead to submit to regular publicized procedures whenever they think they have been victimized, these disturbances and associated costs can be largely avoided.[17]

Additionally, in some cases, DIAs may only be able to cover aggression in certain pre-approved geographical areas. For similar reasons, the premiums offered may also be largely affected by the geographical area in which the client may wish to be covered. If this client is violated outside of these covered areas, then the insurance company would not be obligated to reimburse him for his injuries. Thus many commercial or residential areas will attempt to meet DIA approved standards of safety and civility, so as to encourage tourism and the immigration of high-net worth individuals.

Should one lose his DIA coverage due to his engagement in aggressive behavior, then his social status will be greatly damaged. Criminal record bureaus may track the conduct of such individuals and provide their information upon request to interested parties such as credit agencies or prospective employers. These interested individuals may also include property owners in residential or commercial areas, to whom such information will likely have a substantial effect on the decision of whether to grant a given person access to their property. Of course, these employers or property owners may overlook past criminal behavior if the individual in question can demonstrate the completion of some form of rehabilitation as previously mentioned.

A common concern with a private law system lies with the idea that the rich will end up purchasing unjust legal favor by bribing arbitration agencies or DIAs. This practice is certainly common today. It is clear that wealthier individuals convicted of the same crime tend to be dealt less severe punishments than their less wealthy counterparts in contemporary State-run legal systems. Worse yet, the State holds a monopoly on the provision of law and order. It has no competitors and does not fear extinction. The otherwise tempering prospects of losing market share to one’s competitors is absent. Unsurprisingly, the State also claims the authority to arbitrate any and all conflicts involving its own agents or agencies which yields a clear conflict of interest that would never pass in a private law system. It is a lawless institution as it ultimately never submits itself to the decision of a neutral, third party.

However, it is still worth addressing the possibility of foul play occurring in a private law system. It is the preservation of reputation and legal status that deters DIA agents from acquiescing to bribes or any other form of foul play in the execution of their services. For as soon as it is discovered that a DIA’s agents committed a serious injustice, the DIA as a whole will be vulnerable to losing significant credibility and business. In the event that said agents commit an injustice, the slighted individual could publicize the transgression, perhaps to various watch dog agencies or even criminal records bureaus that perform regular audits on such firms. Next, if foul play has been indicated by the investigation of these disinterested third parties, then the competitors of this dubious firm would see to it that such behavior was widely marketed along with whatever publications the watch dog agencies produce. If a given DIA refuses a request to undergo an audit by a credible watchdog agency or criminal records bureau, then such evasive behavior would also likely be publicized in a similar manner resulting in the denigration of this dubious firm’s reputation and business. A firm’s credibility in the private law industry is paramount to its viability in a truly free market. The same such considerations will likewise deter foul play on the part of arbitration agencies.

With alternative, competitive markets in defense and judicial services, prohibitions on all types of “victimless crimes” may virtually disappear. Today, many billions of dollars are spent on the drug war, which is responsible for untold levels of violence. However, the ownership, production, distribution, or consumption of drugs does not entail a violation against property or persons – likewise for gambling and prostitution. As such, very few people would likely be interested in paying for protection against such activities:

Lastly, it is worthwhile pointing out that while states as tax-funded agencies can — and do — engage in the large-scale prosecution of victimless crimes such as “illegal-drug” use, prostitution, or gambling, these “crimes” would tend to be of little or no concern within a system of freely funded protection agencies. “Protection” against such “crimes” would require higher insurance premiums, but since these “crimes” — unlike genuine crimes against persons and property — do not create victims, very few people would be willing to spend money on such “protection.”[18]

The legalization of such activities would also render a crippling blow to violent organized crime syndicates as they tend to be the greatest source of revenue for these institutions. This loss in revenue will result in a corresponding loss of power and influence previously enjoyed by these criminal organizations.

In a free market, no single protection agency holds all the cards. Power is decentralized amongst those who provide protection. It is unlikely that any single agency will succeed in submitting his competitors and customers to its arbitrary will. Customers, for instance, can demand ample assurances and checks on their power. This could include having the DIA subject itself to third party auditing and the like. Robert Murphy adds some relevant commentary:

… [T]he private companies providing legal services would have far less power under free 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 free 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.[19]

As third-party protection and arbitration agencies gain popularity relative to State agencies, there will be noticeable civilizing effects. As the price of protection collapses, criminals will find honorable work to be more rewarding to their ends than committing aggression. Time preferences will lower as individuals hire competent security and resolution agencies and abandon brutal and petty municipal police departments. Hoppe elaborates:

As a result of the constant cooperation of various insurers and arbitrators, then, a tendency toward the unification of property and contract law and the harmonization of the rules of procedure, evidence, and conflict resolution would be set in motion. Thus, in buying protection insurance, every insurer and insured becomes a participant in an integrated system of conflict avoidance and peacekeeping. Every single conflict and damage claim, regardless of where and by or against whom, would fall under the jurisdiction of one or more specific insurance agencies and would be handled either by an individual insurer’s “domestic” law or by the “international” or “universal” law provisions and procedures agreed upon by everyone in advance. Hence, instead of permanent conflict, injustice, and legal insecurity — as under the present statist conditions — in a private-law society, peace, justice, and legal security would hold sway.[20]

Crime, unfortunately, will always exist, and it is not the purpose of this argument to prove that implementing a private law system will convert all men to saints and angels. Rather, it is intended to demonstrate that such a system is preferable to State-provided “justice.” This argument for a private law system only takes for granted that mankind is inherently self-interested. That people prefer to get the most amount of gain for the least amount of input, and it takes these seemingly negative characteristics and aligns them with the welfare of society. This, of course, does not mean one must not have charitable inclinations for free market anarchy to function properly or even that the profits sought must be of a monetary nature. It simply means this: given that human beings purposively use means to achieve ends, a free and open market in law will be the most conducive in satisfying the greatest number of desires to the greatest degree. The beauty of the free market is that this practical end is achieved precisely by adhering to the libertarian principles of justice.

References and Footnotes



[1] Before I begin I would like to attribute credit to the men whose works have largely influenced the formulation of this chapter: Hans Hermann Hoppe, Stephan Kinsella, Robert P. Murphy, and David Friedman.

[2] Hans-Hermann Hoppe, “State or Private Law Society?”

[3] Stephan Kinsella, “Punishment and Proportionality: The Estoppel Approach” in Journal of Libertarian Studies 1st ser. 12 (1996): 51-73.

[4] Kinsella, “Punishment and Proportionality.”

[5] Kinsella, ibid.

[6] In every voluntary transaction, both parties gain ex ante. Neither would exchange anything if he believed he would be worse off after the exchange. They must each prefer what the other offers to what they offer. Yet, which party gained more? The buyer or the seller? As neither party’s cardinal valuations are observable, it becomes impossible to answer. Thus, no such comparisons are warranted.

[7] Stephan Kinsella, “Legislation and the Discovery of Law in a Free Society” in Journal of Libertarian Studies 11.2 (1995): 132-81.

[8] Kinsella, “Legislation and the Discovery of Law in a Free Society.”

[9] Hoppe, “State or Private Law Society.”

[10] Hoppe, ibid.

[11] Hoppe, ibid.

[12] Bryan D. Caplan, “Rational Irrationality” in The Myth of the Rational Voter: Why Democracies Choose Bad Policies (Princeton: Princeton University Press, 2007), 132. Caplan writes: “Since delusional political beliefs are free, the voter consumes until he reaches his “satiation point,” believing whatever makes him feel best. When a person puts on his voting hat, he does not have to give up practical efficacy in exchange for self-image, because he has no practical efficacy to give up in the first place.”

[13] Hoppe, ibid.

[14] Though this may entail differences in the contents of records from one agency to another, the market process will tend toward deeming one or a select few bureaus as the industry standard(s) much like the “Non-GMO Project verified” seal serves as today’s standard for identifying GMO free food.

[15] Hoppe, ibid.

[16] Hoppe, ibid.

[17] Hoppe, ibid.

[18] Hoppe, ibid.

[19] Robert P. Murphy, Chaos Theory: Two Essays on Market Anarchy (New York: RJ Communications LLC, 2002).

[20] Hoppe, ibid