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3 Times Anarcho-Capitalist Private Law Has Worked

While many may dismiss the idea of anarcho-capitalist law for its perceived lack of real-world success, here are three great examples of it working.

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By Mason Mohon | @mohonofficial

Everything is scarce. Time, space, human bodies, and all resources are limited. For each of them, there is a finite amount. Because of this finite amount, there are bound to be conflicts over who gets to use what. There will be conflict over who gets to use a piece of land or use a resource.

The greatest way to avoid this widespread conflict is a system of norms that aim to reduce conflict. A societally accepted private property norm that ensures that I own my body and my property can help in avoiding conflict. If the people in my community agree that my house is mine and my body is mine, they recognize that they are not allowed to enter without my permission or use my resources without my consent.

A system of widely accepted private property norms is what allows for peace to prevail. But what if the community does not accept these norms? It does not matter that I am the first user of a piece of property if nobody recognizes it as mine. If one is able to trample my property and steal my belongings without society caring, property doesn’t matter and peace it out of the question.

This is the problem that people often see with Anarcho-Capitalism. They believe that because there is no monopolized enforcer of property rights, then there is no chance at peace. Violence will prevail and a Hobbesian hell will ensue. Even libertarians have this problem with Anarcho-Capitalism. They think that property rights and individual freedom are important, but they do not believe that it is a sustainable model without a government minorly infringing on rights so as to provide protection.

The question must be posed, then: could private law work? Could we ensure that there is enforcement for property rights without a state? The theory behind this is well established, but even then it is hard to buy because the layman does not see examples of its success in the real world. We do not have exposure to private law, so we don’t think that it is possible for it to exist. The aim of this article is to establish the theory and then to look at how the theory has manifested in the real world.

The Economics of Private Law

First, we must ask the question of why bother? Why should we care about the private production of law and defense in the first place? Can we not just remain with the status quo? Libertarians, and especially Anarcho-Capitalists, respond with a resounding “no”. The status quo, especially in America, is unacceptable. The United States overtaxes and has a plethora of regulations that hold bad economic freedom and productivity. On top of that, we have various laws in the United States that trample on basic civil liberties, from the War on Drugs to the mass surveillance state. In addition to the economic and social lack of freedom, America has become an empire that reaches its talons across the Earth. We pillage smaller countries under the guise of counter-terrorism so as to satisfy our own interests.

As Lew Rockwell explains:

[T]he reason we focus on these issues in the first place is that we realize the State cannot be reformed. The State is a monopolist of aggressive violence and a massive wealth-transfer mechanism, and it is doing precisely what is in its nature to do. The utopian dream of “limited government” cannot be realized, since government has no interest in remaining limited. A smaller version of what we have now, while preferable, cannot be a stable, long-term solution. So we need to conceive of how we could live without the State or its parasitism at all.

The state cannot exist without monopolizing on violence and using it. To engage in any project, it must first take money from the population at the threat of force. From the very beginning, this is a moral atrocity. Because of this failure to live peacefully from the get-go, humanity needs to look for an alternative to state control. Because of this, we will explore the ideas of some libertarian economists and legal theorists who have explored possible alternatives.

Robert Murphy and Privatizing Law

Robert Murphy, also known as Bob, is a senior fellow at the Mises Institute who has been researching the ins and outs of private law for years. He believes that the market system could provide a system of law and order far better than a government can. Year after year he has given a lecture at the libertarian youth conference, Mises University, titled “The Market for Security.”

Of course, not all of the ins-and-outs of a market system of private law can be covered by a 40-minute lecture, so that is why he wrote his book Chaos Theory, which is a collection of essays that focus on private law and defense.

Within a private law society, contracts would dictate the bounds of a relationship between two people. An employer would make employees sign that they would not steal company assets, and embedded within the contract would be the stipulation that if they did steal, their method of repayment would be determined by a pre-determined arbitrator.

Unfair arbitrators would be discriminated against because firms and individuals that embedded them into their contracts would lose business. The fairest and nonbiased arbitrators would win out in the end due to competition on the free market.

Murphy then continues to explain the utility of insurance companies in the realm of arbitration:

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 co-signer) 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.

A system of insurance agencies would ensure that the victims of violations of property rights would be immediately compensated. In the status quo, justice is a matter of placing people in a cage, which does nothing to help the victims. According to libertarians, though, justice is a matter of compensation. A thief should have to return the stolen goods and compensate the victim for lost time and psychological distress. A murderer should be forced to pay an inordinate sum of money to the family of the victim.

People would be far less likely to engage in business dealings with someone who has not paid insurance premiums. They would be skeptical of the fact that this person is not ready to pay for any damages to property that they engage in. Robert then goes into many of the objections and questions that people have about such a system, which I will not cover in this article. The intention of this section was to outline what Murphy’s prediction of a system of private law would look like. The answers to his objections are in Chaos Theory, which is linked for free both above and here. Chances are if you have a disagreement with this system, he has addressed it.

Hans-Hermann Hoppe and Property Insurance

Hans-Hermann Hoppe, in his book Democracy: The God That Failed, described that he believes that defense of property is the same as insurance. He cites past thinkers such as Rothbard, Molinari, and the Tannehills as evidence that he is not alone in this stance. All of these libertarian theoreticians have posited such a theory, which gives it credibility and a literature base that makes it worth considering.

Economically, it makes the most sense for insurance companies to take charge of protection of property. An individual pays a premium to the insurance agency, and in exchange, the company will protect the individual assets of the customer. The customer is incentivized to be nonaggressive and take their own precautions when it comes to self-defense. The installation of security or a firearms training course could possibly lower the premiums. A track record of harassing defenseless people and inciting conflict would raise one’s rates or possibly have them removed from the system altogether.

Like any other business, the insurance company must serve its consumers. Once a dues-paying consumer’s property is damaged/stolen, the company would be contractually obligated to find the perpetrator and compell them to compensate the victim. The company would want to do this in the most efficient and easy way possible, while still ensuring that they get their job done. Security cameras would become popular because of the possible insurance premium bonus. An insurance company that is slow at its job or did it in a costly manner would lose business to competitors.

Insurance companies seek to turn a profit, so they would incentivize customers to take every precaution possible so as to not have their property stolen, invaded, or damaged. This is because whenever damages occur, the customer costs the company resources in terms of investigation time and the manpower to take back compensation. Because of this, insurance premium bonuses may be procured for anyone who takes various safety precautions.

If a situation arose where the insurance company was attempting to collect damages from a perpetrator who claimed that they are not the violator, and that perpetrator is insured by another agency, what happens? Would a war between two insurance companies occur? Of course not, because war is costly. It is a budgetary black hole that only government wastes its time and resources on. Instead, the insurance agencies would go to a third party – an arbitrator. They would agree to one with a track record of not being biased, thus ensuring a constantly improving quality of arbitration. Arbitration agencies that were found to have secret ties to a certain insurance agency, or even ruled in favor of a certain agency suspiciously often, would go out of business because of suspicion or outright discovery of fraud.

Hoppe goes on to cover a few more of the intricacies of such a system, but above I have detailed the bare bones of the system and shown what would probably happen in a couple of situations based on economic incentives. Hans Hoppe’s system is one that incentivizes responsibility, quick justice, and perfectibility in law.

David Friedman and Private Arbitration Enforcement

In David Friedman’s book The Machinery of Freedom, he describes what he sees as the market solution to the problem of property enforcement. The core problem that he sees with private arbitrators (when compared to government courts) is their lack of ability to enforce a decision if one of the clients decides that they will not abide by the ruling.

He explains that all arbitration agencies would be forced by the market to remain completely honest. In the status quo of government courts, the incentive for honesty is shaky. A publicly appointed judge may rule in favor of those he likes and against those he does not. Along with the fact that many judges are appointed to life terms, the system insulates him from the consequences of his actions because regardless of what he does taxpayer dollars will flow into his pocket. Private arbitration agencies, on the other hand, are subject to the sovereignty of the consumer. Word of a dishonest arbitrator would spread quickly, and the arbitrator would go out of business.

There are two ways in which Friedman explains that a private arbitrator could ensure that clients would abide by its decision. The first is a contract in which both clients pay a sum that equals the highest possible damages. The arbitration agency holds onto this to ensure that both parties abide by the ruling. Once the ruling is made, the money is paid back to the rightful owners, with any damages paid out in addition. The arbitration agency takes a cut for their services.

The second method is a system of credit ratings. Client firms that enter arbitration would have a credit score. Client firms that fail to abide by the ruling would then be subject to a blacklist, meaning that they do not know how to play fair. Other firms and individuals would be very skeptical of firms with low credit ratings that have ended up on the blacklist. This would cause dishonest and cheating firms to lose clients and customers, ultimately resulting in financial demise.

The Empirics of Private Law

A true market lacks any central planning. It is the culmination of many individual actors seeking to satisfy demand in order to make a profit. This process leads to a plurality of products in each area of the economy, and in a completely free market society, this would also mean that there is a plurality in the types of defense goods produced. This plurality is also indicated by the fact that none of the theoretical standpoints that have been showcased above have been in 100% agreement.

All of the above economists have disclamed at one point or another that the market is unpredictable. The economists cannot predict the future, and they realize that. Because they cannot, they only attempt to draw rough sketches. They have pencil drawings of what Anarcho-Capitalist law and order could look like. The market, though, has given us a few complex paintings, which have shown us that this anarcho-capitalist system of governance is viable.

The Technology Age

The advent of the internet has allowed for an entire space to be carved out independent of the control of the state. This example is not as much of a historical account as the other real-world examples. This means it is more subject to skepticism than the other examples, which are purely historical. That is why this example is first: so that we may save the best for last.

The internet is not a physical place. The act of traveling through the internet is very distinct from traveling in the real world. The digital realm has properties completely alien to our present reality, but that does not mean that it isn’t real. It especially does not mean that it is not important and that there is no value in it. People can own property on the internet (and this is not limited to intellectual property). The site you have that is run by a server is yours, even if it just exists on the internet. Digital payment processes, although they are rooted in real-world offices, take place in the digital space.

Exchanges can be made online. Contracts can be secured. Confidential information can be sent back and forth between individuals or groups. Because of the vast amount of value that can be gained from a digital world, there is a risk that it may go wrong. Malicious individuals may take advantage of the non-physicality of it and violate the rights of others for their own personal gain. Hackers may breach digital walls to get to information or wealth. On top of all of this, the internet itself is independent of any governmental boundaries. This means that it needs to find its own methods to enforce its own property norms.

PayPal’s system of arbitration is one way in which the internet has managed to resolve conflicts between parties in a way that results in the rightful owners ending the day with their money. This is especially important because the internet allows for the possibility of anonymity. Because of this, companies (such as PayPal) will verify identities so as to keep clients honest with one another. In addition, what is to stop a PayPal user from claiming that a legitimate transaction was fraudulent and avoiding payment for a deal?

This is why PayPal has developed its own form of private dispute resolution. First, PayPal lets the clients see if they can resolve the conflict independently. If they prove incapable, PayPal itself will step in and resolve the conflict on behalf of the clients. They will open up their own investigation and make a ruling. This allows for fair payments to prevail and cheaters to be excluded from the system, thus ensuring the rightful owners keep their money.

The development of blockchain technology allows the internet to go even further in its insurance of fairness. Bitcoin’s birth came with a technology that removed the need for trust from the equation altogether, thus removing the need for identity independent of the blockchain. A completely decentralized ledger prohibits anyone from faking a blockchain system. In addition, it prohibits a strongman from climbing to the top and taking advantage of people. Digital systems that run on blockchain are experiencing the anarchy of the online world at its full force. It does not require leaders, coercion of any kind, or even trust.

The Chieftans of Iceland

Iceland was settled by Norwegians in 870 AD, and in 930 the Icelanders held an assembly to agree on the common law of the land. Their law was the same as Norway’s, with one exception: they did not feel that they needed a king. Instead, the Icelandic system was organized around chieftains.

Originally, these chieftains were entrepreneurs who would establish local temples. These local temples were the rights of the chieftain, and they were also private property. The chieftain had the authority to sell, lend, or inherit this property. It was voluntarily attained and voluntarily maintained.

According to David Friedman, these chieftains, through their estates, would protect the property of those who voluntarily submitted to their authority. Law would be determined through suits between people belonging to different chieftains’ estates. The subjects, known as thingmen, were not citizens, though. Their obligations to the chieftains were only what was mutually agreed upon.

The “government” of Iceland during this time had one government employee – the lawspeaker. This lawspeaker would preside over the law and give legal advice, but did not dictate what the law was and how it should work. He was elected through popular vote.

When one sued another, the defending party, if found guilty, would have to abide by the decision. If they refused, they would be socially ostracized and physically removed. If they further refused to leave after violating the law of the land, the victim could exact revenge without consequences.

One objection to this system would be that a strongman could defend himself properly and avoid having to ever pay damages, but the system had a solution to this too. A claim on damages was property, though. If one was not sufficiently powerful to take down the violator, they could sell the right to the damages. Thus, they are compensated, and a more powerful party now has a profit motive to exact justice.

But how long did it last? Longer than the United States has. As Friedman explains,

These extraordinary institutions survived for over three hundred years, and the society in which they survived appears to have been in many ways an attractive one.

This system was superior to ours for two reasons. The first is that it did not begin with state coercion so as to fund the methods of law enforcement. This meant that the enforcement of property through a sovereign was done in an ethically superior way. The state of affairs in Iceland was better than ours, ethically speaking.

Furthermore, it was decentralized. In the contemporary United States, the law is decided based on the popular vote of those in the House and Senate. The standards set by said law are arbitrary. One can call in as many experts as they want, but the end result will ultimately be detached from real experience. Decentralized law (like that of Iceland) on the other hand is developed as the sum of many cases over time. The judges and jury can decide on what is reasonably justified in the more difficult cases. This provides a solution to the oft-cited criticisms against libertarianism that forces the Non-Aggression Principle into justifying quite awful things (as seen by the previously popular “AnCap Memes”).

Liechtenstein

Liechtenstein is a very small principality nestled in the mountains of Europe. It neighbors Austria and Switzerland and is only 25 kilometers long. Its population is just under 40 thousand, but it is also the richest per capita country in the world. It seems like a nice little place with nothing too notable. But what sets Liechtenstein really apart from the rest of the world is its governmental style. Prince Hans-Adam, the current monarch, says the following towards the beginning of his book The State in the Third Millenium:

I would like to set out in this book the reasons why the traditional state as a monopoly enterprise not only is an inefficient enterprise with a poor price-performance ratio, but even more importantly, becomes more of a danger for humanity the longer it exists.

Liechtenstein is in anarchy. The reigning government is barely a government at all because it does not fit the minimum standards of what a government actually is. It is not a monopolist on the territory that it owns and it is not a monopolist on the production of defense. Every single town and household in the country has the right to secede. At the same time, it is legal to create a defense company that competes with the government’s production of defense. There is, however, no demand for non-governmental protection because the de-monopolized state does such a great job of it.

The country has a monarchical government, yet it has many democratic elements. There is a parliament with 25 members, yet the prince has the authority to either dissolve the parliament or veto their decisions. At the same time, popular referendums also keep the monarchy in check. The prince has no power to veto a referendum to dissolve completely the princely house.

Liechtenstein is probably the freest place on earth and is also one of the wealthiest. One may object that their system could not be implemented on the scale of the United States, but why keep it on such a scale? The monarchy of Liechtenstein operates in a way analogous to a business. Businesses have to grow and find their right size. They have to push their boundaries amidst competitors doing the same thing. The U.S. doesn’t need to turn into Liechtenstein, it needs to dissolve into many Liechtensteins.

* * *

Anarcho-capitalism is usually not taken seriously because of the supposed lack of solutions to the question of defense. This is what makes the difference between an anarchist and a statist. This article hopes to serve as both a theoretical first step and a proof of concept for the private production of defense. The first half discusses competing theories, each of which the reader can look deeper into, while the second half looks at the real world manifestations. Using the information that has been supplied here, the reader should be primed to engage in extensive research down the right avenues.


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