A Convincing Schematic for Market Anarchy

Over at C4SS’ Stateless U in ATP 102, I read and critiqued Chapter 1 (“Private Law”) of Robert Murphy’s “Chaos Theory. [PDF]”

In “Private Law,” Murphy takes aim at the mistaken belief that without government there is no law. The web of voluntary arrangements we call “the market” can handle law, just as it can handle even more urgent needs like food, clothing and shelter. Even under government now there are many different lawmaking authorities and sets of law, Murphy points out. So this is not an especially strange or exotic idea. In fact, the market can do it more efficiently and produce better justice, he claims. Murphy’s argument is succinct and convincing. His plan for voluntary law is straightforward but capable of scaling to enormous complexity.

Under Murphy’s proposed system of private law, there would be no laws promulgated by legislatures, judged by state courts or enforced by state police. Instead, all law would arise from voluntary contracts and apply only to those individuals in those contexts where voluntary agreement has been secured. For example, in order to “outlaw” theft in the workplace, employees would sign contracts with their employers agreeing not to steal. It’s as simple as that.

All of what we now refer to as laws would be made effective in the same way. In order to buy something, there would be a contract. Murphy argues that these contracts would be standardized and simplified. Legal experts would compete to write the best ones, he says. In order to rent an apartment, there would be a contract. In order even to enter a friend’s house or travel down the road, one would have to first sign a contract covering all the eventualities of that situation.

Should a claim of theft arise, the case would be heard by the private arbitration agency named for that purpose in the appropriate contract. But what if the agency abuses its authority or decides a case incorrectly? Without a state to cartelize the media, word would get out. Without a state to bail out the arbitration agency, it would lose business. In other words, market action would keep bad actors in check.

Murphy posits that individuals would engage insurance companies as co-signers for their contracts. In this way, any restitution would be paid immediately to victims, just as life or car insurance payments happen today. This would help make victims whole, unlike the state justice system where damages payments are not guaranteed. It would also provide a strong web of incentives against criminal activity. Violate a voluntary contract and your insurance rates will go up. Similar to the credit card system now, Murphy argues, the very existence of this surety system is so useful that people would keep paying in order to not lose access to it.

Violent criminals, instead of going to state prison on the public dime, could be granted continued insurance coverage on the provision that they reside in a high security facility. There the insurance company would have a strong incentive to ensure they harm no one, since they would be liable for any crimes. Since the prisoners are paying customers, there could be competition among prisons, providing an incentive for more humane prison conditions. What’s more, even those accused of violent crimes who escape formal condemnation on a legal technicality could still be the subject of corrective measures by their insurance company.

To those who worry about individuals possessing bazookas, nuclear weapons or weapons of mass destruction, Murphy proposes a clever solution. The insurance companies, taking into account the risks posed by simple possession of these arms, could make ownership cost prohibitive. This is an entirely voluntary and effective solution. Those with the financial capability to actually keep these weapons would have the most to lose should they be abused.

While Murphy’s argument is very persuasive, even elegant, there is something very dark about finding oneself at the mercy of an insurance company. Insurance companies have a reputation for bureaucracy, one of the most hated aspects of government. Admittedly, without government, insurance companies would likely have less need for bureaucracy and would experience inexorable incentives to simplify their operations. Murphy convincingly argues that insurance companies could not morph into a new state again because there would be no tax collection mechanism or central authority to occupy. Also customers, through market action, could bankrupt a misbehaving firm.

Submitting oneself to a certain, single arbitration firm also sounds dangerous. If a misdeed occurs, it could take some time before it is corrected. Meanwhile, one might be wasting away in a secure facility, in financial ruin, unable to afford the access to the outside world needed to correct the injustice. Nightmare scenarios, of course, are possible in any society, with any political arrangements.

Murphy’s system of private law is unquestionably better than what we have now. The incentives are right. The means are voluntary. No system will be perfect but this one is simple, elegant and promises to be effective.

Photo credit: biscuitsmlp. Photo license.

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