Part 1: Principles
What is government?
Government is defined as a territorial monopolist in the field of producing law. That is, it is the sole provider of law, the ultimate decision-maker, arbitrator and wielder of force within a territory. As a monopoly, it maintains its position by using aggression (the use or threat of violence) to prevent competing providers of law from emerging.
Government is only the organization that uses the “political means”. That is, the widely-accepted use of aggression to attain wealth: for example the monopolist declares its own acts of theft to be “legal”, calling it “taxation” and enforcing compliance. Everyone else must attain wealth using the “economic means”: producing something of value to others and then engaging in voluntary acts of trade.
Government is a territorial monopolist of law. But what is law?
Interpersonal conflicts are possible due to material scarcity of resources and goods, and diversity of interests between individuals. The potential for conflicts makes property rules and ownership rights necessary for social cooperation.
For example, apples are scarce, and this means that if two people both want it eat a particular apple, they cannot both be satisfied. For conflict avoidance, we need property rules to establish who has the ownership right over the apple: that is, who has the right to decide how the apple is used.
Laws are property rules that emerge from the resolution of conflicts. The production of law, the resolving of conflicts, is a service provided by an arbitrator or judge.
Imagine two individuals, stranded on a desert island: Adam and Ben. Adam picks a supply of apples, but then Ben comes along and takes an apple without Adam’s consent. We have a conflict.
Adam: “That’s my apple, because I picked it!”
Ben: “It is my apple, because it was on my tree!”
With no one else on the island, Adam and Ben have no one they can turn to for help resolving this conflict. They may succeed in negotiating a peaceful settlement between each other, or they may resort to physical violence.
But now suppose a third individual is on the island: Charlie. Now there is another possible way for Adam and Ben to resolve their apple conflict peacefully: ask Charlie for his opinion and agree to whatever resolution he suggests.
Ben: “We’re having a dispute over an apple. Both of us claim it as our own. Will you arbitrate for us?”
This is third-party dispute resolution. Adam and Ben both make their cases to Charlie. Charlie must decide who he believes has the stronger claim to the disputed apple, and then pronounce a judgment on the case.
Charlie: “I do not think Ben owned the tree, so I award ownership of the apple to Adam.”
Charlie has just produced a law. He has made a judgment about who the rightful owner of a disputed property is. He has awarded legal ownership of a property to one of the disputants. But Adam feels it would be unjust if Ben only has to return the apple he stole. Adam wants Ben to be punished, and wants compensation for having his time wasted. He insists that Ben pay him 5 additional apples, and then he will consider the matter settled.
Unable to solve this dispute between themselves, they ask Charlie for his opinion. Charlie recognizes the need to compensate Adam for his lost time and to punish Ben. His opinion is that a payment of 2 additional apples from Ben to Adam would be a just resolution to this conflict.
Since the purpose of Adam and Ben turning to Charlie was to help them resolve the dispute peacefully, both men will agree to his decision. If one of them does not, then they are back to having to resolve the conflict between themselves, either peacefully or otherwise. By arbitrating on a conflict and helping to resolve it peacefully, Charlie has produced a law.
Now suppose some time later on the island, another conflict occurs: this time between Adam and Charlie. If they cannot resolve the dispute by themselves, they could ask Ben to arbitrate for them.
Ben: “I’ll arbitrate for you!”
When Ben provides them with his opinion on the conflict and suggests a resolution, he too will have produced a law. And, if Ben and Charlie ever get into a dispute, they could ask Adam to produce a law for them.
There are multiple producers of law in this society. No single producer of law is in a privileged position. There is no ruler and no one is ruled. Everyone is of equal status with respect to the laws.
What would a monopoly of the production of law look like on our desert island?
Ben: “I’ll arbitrate for you!”
Charlie: “No. You are not allowed to arbitrate. I am the only one who can produce law on this island. My law is THE law!”
The injustice of this arrangement would be immediately apparent to both Adam and Ben.
Adam: “But… that would mean you even get to be the judge in disputes you are involved in!”
Ben: “And you could do whatever you want, like steal from us, and order us around, and call it “legal”!”
Charlie: “That’s right. I am the State.”
Charlie could only establish himself as ruler, and maintain that position, if he could somehow convince Adam and Ben that a ruler is necessary, and that with no ruler – anarchy – there would be chaos and disorder. If Charlie is able to maintain a monopoly of arbitration and ultimate decision-making, he will have put himself “above” the law. And Adam and Ben can no longer be considered free men.
Now suppose there are a few more individuals in this island society, and two of them have a dispute that they cannot resolve peacefully among themselves. The disputants have a choice of arbitrators that might help them resolve the conflict. There is competition in the production of law. Who will they choose?
The ideal arbitrator will be someone who is impartial, and who has a good reputation for being fair, honest and wise. As the population grows and the division of labor intensifies, some individuals who possess these qualities may find that they can make a living purely by providing arbitration services to disputants. They will be professional judges and law makers and may create firms selling laws. Their consumers will be disputants who need help resolving a conflict. Their income will depend on their reputation for making wise and fair decisions. If any one of them tries to become a monopolist, for example by insisting on being judge in a case involving himself or a member of family, he will quickly lose his reputation and his livelihood.
The principles of having competition in the field of law do not change as society becomes larger and more complex.
Part 2: Conflict Resolution in a Free Society
Where food production is monopolized by the government, it can be hard for the people to imagine how it could ever be any other way. They fear they may starve without government to plan and direct food production. They cannot imagine how a free market in food production could possibly work, let alone how much better off they would be with that system. They are too accustomed to having food provided for them by the government.
We are accustomed to a society where the arbitration and law industry – the courts system – is monopolised by the government. We fear chaos and disorder without government to plan and direct law. We find it hard to imagine how a free market in law could possibly work. In this video I will broadly describe how law and security could be provided by competing voluntary institutions.
This is Alice. Alice lives in a free society, where security and law are provided not by a government, but by competing firms. Like most people, Alice demands to feel secure in her person and property. She does not want anyone to aggress against her. Alice also demands that, if someone does commit aggression against her, she will be able to bring the aggressor to justice, and receive compensation.
A number of competing firms exist to satisfy these consumer demands. The firm Alice subscribes to, Dawn Defense, has a good reputation for preventing crime, and for obtaining justice when crimes do take place.
Alice pays her security bill monthly, the same way she pays for her electricity and telephone services. She is on a standard package, which suits her budget and her lifestyle choices. She has chosen an insurance option, so that if someone steals from her, she is guaranteed quick compensation.
One evening while walking home, Alice becomes a victim of aggression, when she is mugged at gunpoint. At the earliest opportunity, Alice calls the emergency service number and is put through to Dawn Defense emergency response center. They quickly dispatch agents to her location.
Unfortunately, by the time their agents arrive on the scene, the mugger is long gone. The agents examine the crime scene, and gather witness statements and any evidence that might help them identify and locate the mugger.
As specified in their contract, Dawn Defense pays Alice compensation for her losses: enough to cover the possessions taken from her, and a good deal more for her time, trouble and distress. Alice’s part in this story is now over. Dawn Defense, however, will want to bring the mugger to justice. They will want to recover their costs, and they have promised their customers that muggers will not get off lightly.
After doing some detective work, Dawn Defense identifies, with reasonable confidence, Bob as the aggressor. They locate him and issue him with a written demand: that he pays them $10,000 as a punishment for the crime he committed against Alice. Bob has two choices. He could admit his guilt and pay up so that Dawn Defense leaves him alone. Or he could refuse to pay.
Bob refuses to pay, claiming he is innocent. Dawn Defense will not want to have a reputation for harassing or using force against innocent people, so it will listen to his case.
After hearing his case, if they remain convinced of his guilt, they will insist on payment, threatening to use force against him if necessary. Bob now faces the same two choices. If he still refuses to pay, Dawn Defense will send armed men round to his house to enforce their punishment.
What if Bob has his own security? After receiving the first letter from Dawn Defense, Bob calls Tanna Justice, the security agency he subscribes to. He tells them he is completely innocent, and that he is being unjustly threatened with force by Dawn Defense. Tanna Justice calls Dawn Defense immediately to discuss the accusation of mugging. They insist on seeing some evidence. They conduct their own investigation.
After their investigation, they might agree with Dawn Defense that Bob is guilty. In this case, they order Bob to accept his punishment, and will not protect him from any force that Dawn Defense uses against him. Or they might reach the opposite conclusion: that Bob is innocent. In this case, they’ll stand by Bob, and consider the threats made by Dawn Defense to be aggressive. The two firms just cannot agree about what events took place.
So what happens now? Do they fight it out? Such a war would be costly for both sides and they would suffer reputational damage. Security firms that resort to war soon find themselves bankrupt, as consumers switch to their cheaper and more peaceful competitors. Dawn Defense and Tanna Justice have every incentive to find some peaceful way to resolve the conflict.
Since they cannot reach agreement about what happened, the two firms agree to pay for an independent arbitrator to look at the case, and agree to be bound by that arbitrator’s decision. Since both firms are large and well-established, they have a prior agreement about which firm to go in such cases.
Their chosen arbitrator – Benson Enterprises – is a firm that specializes in resolving such disagreements between security firms. Bensons examine the evidence presented by the two sides, and listen to their arguments. After careful consideration, they conclude that Bob is guilty of mugging Alice. As agreed, both sides accept the decision. Tanna Justice stand down from defending Bob.
Now with no-one to protect him, Bob has no other choice but to accept his punishment. Benson Enterprises is a highly respected firm, and no other security firm will agree to defend him now against the force threatened by Dawn Defense, unless new evidence emerges or the reputation of Bensons is brought into question.
If he is unable to pay the $10,000 punishment because he is poor, Dawn Defense will accept payment over a longer term. They may insist on taking a portion of his wages until his debt, plus interest, is paid, and may contract with his employer to guarantee they are paid. If Bob is unemployed, they may insist on taking a more active role in his life. They may force him to work at a place of their choosing.
If Bob is dangerous, or cannot be trusted to make the payments, they may restrict his movements to a certain region, or as a last resort, to a certain building – a secure workhouse where criminals are held while they pay off their debts to their victims and serve their punishment.
Bob’s crime against Alice will be noted by the various competing criminal records bureaus, and his identity will be made public in databases and in the media.
Security agencies now consider Bob a higher risk for committing further crimes, and may take steps to protect their customers from him. Bob may find it difficult to find a security firm that will accept him as a customer, and if he does he will have to pay higher premiums for it. Because of his record, other business owners may refuse to employ or trade with him, and landowners may not permit him to enter their land.
The performance of the security agencies is noted by various competing watchdog organizations that provide consumers with information about the quality of security and arbitration firms. The details of the case will be made available to auditors who check that the practices of the security and law firms adhere to quality standards.
We cannot know in advance how the security and arbitration firms will be structured. We cannot know how many firms will operate in a given area, or how large an area the typical firm will cover. For simplicity in this video, the two security firms Dawn Defense and Tanna Justice performed a number of distinct functions themselves. Free market competition is needed in order to know whether all these functions will be provided ‘in-house’, or whether some would be ‘outsourced’ or provided by distinct firms.
All these related industries keep the firms satisfying consumer demands for security and law true to their function of protecting individuals against aggression, serving justice, and maintaining order in society.
Part 3: The Bargaining Mechanism
Where there is free market competition, there is consumer sovereignty. What gets produced is what consumers demand, because any firm producing a good or service that does not satisfy consumer preferences will soon go bankrupt and the resources they control will pass into more capable hands.
In this video I will explain the mechanism by which consumer preferences for law and justice are reflected in the policies and decisions made by arbitrators and protection agencies.
There are two potential sources of conflict between security firms.
We previously looked at a conflict about circumstances. When a client of Dawn Defense accused a client of Tanna Justice of mugging, the two agencies could not agree about what events had actually taken place between their clients. They hired a mutually-agreed-upon arbitration firm to peacefully settle this disagreement about facts. There was no disagreement about principles. Dawn Defense insisted on punishing Bill with a fine of $10,000, and Tanna Justice had no objection about the suitability of this punishment.
But what if they did object? Suppose Tanna Justice felt that Bill should only be fined $5,000. How are the two firms going to resolve this conflict? Both firms will want to avoid war, because war is expensive and their customers are free to desert them and subscribe to their cheaper and more peaceful competitors instead.
Instead of violence, they will negotiate with each other to reach a peaceful settlement. Whether they settle on $5,000 or $10,000, or compromise at something in-between, will depend on their respective bargaining power. And this bargaining power depends ultimately on the consumers.
To illustrate how consumers influence bargaining power, let’s take a more extreme example: a disagreement about the suitable punishment for murder. Bill, a customer of Tanna Justice, murdered Alice, a customer of Dawn Defense, and, possibly after a hiring a third-party, neither side disputes this fact.
The disagreement is that Dawn Defense is in favor of the death penalty for murderers, while Tanna Justice is opposed. Will it be life or death for Bill?
It seems as though one protection agency is going to lose out here. Dawn Defense has advertised itself as pro-capital punishment. It has promised its customers that it will seek the death penalty against anyone guilty of murder. They could potentially lose lots of customers if Bill, the murderer of Alice their customer, escapes with his life. Tanna Justice is anti-capital punishment. It has promised its customers it will seek to protect them – even when they are judged guilty of murder – against anyone who threatens them with the death penalty. If they can’t prevent Bill being killed by Dawn Defense, they could potentially lose lots of customers as well.
It is in the strong interest of both agencies that their own punishment is the one used. But one of them must back down, because there is no compromise between life and death, and the only other alternative… is war.
Here is one way they might resolve the conflict peacefully. Suppose Dawn Defense estimates that if it backs down in this case, it will lose $1m worth of revenue from customers who abandon them because they cannot deliver on their pro-death penalty position. This means they would be willing to pay up to $1m to ensure that Bill gets the death penalty, so that they hold on to those customers.
Tanna Justice similarly estimates how many customers they would lose by backing down. They estimate it will lose them $500,000 in revenue, so they would be willing to pay up to $500,000 to prevent Bill getting killed.
So the two sides come to an agreement. Dawn Defense offers to pay $800,000 to Tanna Justice, if they will stand down in this case, and allow them to kill Bill. This deal is worth $200,000 to Dawn Defense. Tanna Justice accepts the offer, because, if their estimates are correct they gain $300,000 from the deal. As with any voluntary trade, both parties benefit from this agreement. As a result, Tanna Justice stand down from defending Bill, and he is executed. Consumers benefit too, because as a whole they were willing to pay $1m to see Bill killed, but only willing to pay $500,000 to see him escape with life.
We have looked at a conflict about principles, where there is a fundamental disagreement about what punishment is suitable. The conflict was resolved when a payment was made from one firm to another so that their punishment would be the one used in the case. The direction of the payment was determined by the bargaining power of the two firms, and ultimately by consumer preferences.
If the two firms are large and well-established, they will likely have an advance agreement on what to do when there is a murder between their clients. It may be that Dawn Defense makes annual payments to Tanna Justice so that capital punishment is used every time.
If we posit additional security firms, some pro capital punishment and some anti, a network of payments will emerge, with each firm calculating how much a favourable agreement with another firm is worth to them.
On other issues, such as what is the suitable punishment for mugging, the pattern of payments may look very different. The pattern is ultimately determined by consumer preferences. One of the many areas in which the protection agencies compete with each other is in how successful they are at getting their advertised punishments enforced against clients of other firms.
As we would expect, where there is a free market law, there is consumer sovereignty. The laws and punishments enforced, in cases where there is a disagreement about what the punishment should be, are determined ultimately by the preferences of consumers, through this bargaining mechanism between protection agencies. Using this framework, we can begin to make reasonable guesses about what laws are likely to exist under a system of competing providers.