Free Market Law

A principle of law that is rarely spoken and often violated is that the law should serve the individuals bound to it rather than some special class at the expense of everyone else, for if law does not do this, why ever should it exist in the first place?

This article will explore some issues only touched upon in my natural law presentation. It begins with some objections to the idea that the law should serve only individuals and then expands on the idea and shows how the free market can produce such a law.

Some might first of all object that law must naturally benefit one class at the expense of another, namely the class of noncriminals against criminals! And how could it be otherwise when the very purpose of law is to bring justice to the unjust? However, there is a sense in which even the criminal can be said to benefit from the application of law; in a lawless land, the criminal would not necessarily get off scott free, but would rather be subject to whatever vengeance his victim and anybody more powerful than him deemed appropriate. This sort of retribution would necessarily be terribly unjust because without an established order preventing and resolving crime you must be brutal with criminals so as to demonstrate that you are not to be messed with. Whereas a free market system of law would tend to find the most efficient ways of resolving the harm done to the victim without any more pain or humiliation to the criminal than is necessary.  Therefore I say that law may serve even the criminal, and if it does not then it is unjust law.

A second objection is that individuals may benefit at the expense of society as a whole, so the law must at times limit individual interest to promote the long-term survival of society. However, this problem is already handled perfectly well by economic law under the free market. Given some new trend among a group of people, columnists and other busybodies will extrapolate that trend to the point that it has been adopted by everybody and deduce that under such circumstances, society simply could not survive. However, this alone is not evidence that the trend is harming society in its present state and no reason to think that it ever will be adopted by everybody. On the free market, people must make a net contribution to their society if they are to continue to be a part of it; if they don’t, they must accept less from their society in the future. Anything that detracts from the wealth of society becomes more costly the more people engage in it. If everyone, for example, were a stoner, society would obviously fall apart. Yet the mere presence of stoners in society does not indicate that society is week; society simply adjusts to depend on stoners less and to reward them less. Society may thereby remain strong and provide a natural disincentive to be a stoner.

It is really only those organizations that are outside the market, such as the state itself, that allow individuals to live off the rest of society beyond their ability to contribute to it. It is therefore only the state that should not be allowed to benefit from being bound to law, but what could be more absurd than to grant a monopoly on law to the only organization of which law must not be to its own benefit? Once our state was created and limited by the constitution, it simply granted itself the monopoly privilege of interpreting the constitution, thereby reducing it, ultimately, to nothing.

Alright, enough objections. Now let’s describe a system of law that individually benefits those bound to it. Such a system of law must be based on individual agreements rather than on a monopoly that forces compliance, because only in giving consent to something does a person demonstrate that they believe themselves benefited by it. Let us first imagine the case of a dispute in which both parties are acting in good faith and wish to see the dispute resolved, and then on to the harder case in which one party is deliberately trying to harm the other.

We begin by imagining a state of lawlessness in order to get an idea of needs that are served by law. When people interact with one another, they both expect to benefit from the deal, but if there is no underlying system of law, there is much less assurance that this will be the case. They must rely entirely on one another’s trust and mutual understanding rather than on third parties to provide consequences to the other party should he prove to be untrustworthy, and standards for the interpretations of deals to ensure that they understand the deal in the same way.

In all human interactions there is ambiguity and uncertainty. As long as these costs are small there is no particular need for law, but in the world we live in, these problems are not small at all! There are bound to be disputes between people; people may interpret their obligations differently, they may be unable to fulfill their obligations for various reasons, situations may arise that are not provided for in the contract, and so on. These may be simple misunderstandings or they may involve deliberate crime, but the difference is immaterial from our standpoint. What is important is that two people disagree on what is owed to one another and are in need of a method to settle the case. We begin with the easier case in which both parties have a prior agreement on whose application they disagree, and then move on to the broader case in which there is a dispute without any prior agreement, as their would be in the case where one party mugs or burglarizes another.

Libertarians sometimes try to derive solutions from the basic axiom of libertarian law requiring consent between both parties in every human interaction, but this cannot be the correct method. When there is a dispute over rights, there is automatically something non-consensual going on; to use the axiom of consent and yet at the same time hypothesize a situation that already violates it is a contradiction. Hence the axiom cannot tell us much about the resolution of conflicts.  All we can say is that given some dispute, something must happen so that everybody agrees on who owns what; of what that something may be the axiom of consent says nothing other than to constrain it in the same way it constrains all human interactions. However, with a little imagination possibilities occur readily. First it is necessary to find an arbiter for the dispute and for both parties to agree to abide by its ruling. This arbiter would have to be some third party, because if it wasn’t, then there would be no dispute in the first place. Unlike our government monopoly system, anybody may offer arbitration services simply by advertising such services. These services would likely charge by the ruling, and they would have a strong incentive to be seen as fair, unbiased, and efficient.

Because having predefined rules in place makes arbitration more efficient to begin with, a system of arbitration that is expected to act according to principle is superior to one that does not. When all that is needed is to apply the predefined rules, there is less room for human bias to enter the case and less work overall to come up with a ruling. In addition, predefined rules make decisions will be more predictable beforehand; this is an advantage because if both parties have a good idea of how their dispute would be resolved if they took it to court, they may not need arbitration in the first place. Predefined rules serve well in further dispelling ambiguity and uncertainty in human interactions; hence arbitration services will want to base their decisions on previously established law. These laws need not be issued by the same organization that arbitrates. Just as anybody can be a judge, anybody can be a legislator as well. It would simply be a matter of writing down laws and publishing them somehow, and those bodies of law which serve best will be the ones adopted by the consumers.

We can also see here the importance of precedent under any legal system. No system of laws can provide for every contingency, but as such situations arise, the body of previous decisions provides a framework for the interpretation of the laws to these cases. In this way certainty is provided where it is needed. For example, if two parties could not agree upon an arbiter, there might be some traditional procedure to decide upon one. Under our present regime, precedent is a ball and chain that the government uses to alter the meaning of the constitution so as to grant itself the power to further enslave us, but on the free market, precedent must serve those to whom the law applies rather than its makers and interpreters. Judges are not, of course, bound to obey precedent, but a judge who does not show judicial restraint adds to the uncertainty rather than dispelling it. A lax observance of percent would therefore be bad for business because it makes the legal system less useful; only precedents that were unpopular among the customers could be safely overturned.  Ultimately, the precedents that become established will become part of the written law as well.

Since an arbitration may always give an unfair ruling no matter how carefully established are its procedures, arbitration services, as a further assurance that their customers will be given satisfactory rulings, will want to have pre-established systems of appeals with other arbitration services. It is sometimes said to be a disadvantage of this system that there is no final arbiter for any decision; one can always continue to appeal a decision. However, I do not see this as a disadvantage. On the one hand, in theory any decision can be unjust and require appeal so a system with a final arbiter is unnecessarily limited in its ability to produce justice, yet in practice an arbitration service has an incentive to prevent unfeasibly long sequences of appeals. People don’t desire their lawsuits to drag on forever. A court of appeals that does not take previous rulings seriously will be less likely to be chosen beforehand as a good court of appeals. Thus, courts of appeals will not accept cases unless they believe that there was really something wrong with all previous rulings.

Under such a system there may well be several different legal traditions in operation at once and it might be difficult to decide upon a single arbiter after there has already been a dispute; therefore one might expect that arbiters would be specified in contracts beforehand. This system will necessarily tend to benefit everybody involved because in bearing the costs of their own use, everyone who uses the system benefits themselves without imposing costs on other people.

Now for the broader case in which there is a dispute without any prior contract. People may steal, murder, trespass and so on, but there is no fundamental difference between this case and the case just dealt with; all that is required is a little more infrastructure in the legal system and it can be resolved according to the same principles. Once again, the solution is to imagine how everything might be handled consensually. In this case, instead of just two parties needing to specify an arbiter beforehand, it is necessary that all of society should be contractually linked with one another so as to specify the manner of arbitration in every case that might come up.

Rather than merely specifying arbiters for a given contractual interaction, therefore, people must specify arbiters more generally. If this is the case, then when anybody accuses anybody else of a crime, there will already be a predefined system of resolving the dispute. If both people subscribe to the same arbitration service, then this one uses its own procedure, whereas if they each subscribe to a different service, then these services will have already chosen some third party to resolve disputes between subscribes of both services. As free-market entities whose continued existence hinges upon their ability to remove ambiguity and uncertainty of consequences from human interactions, arbitration services can be expected to have already come up with contingencies for all possible cases involving any of them.

Of course, nobody would be obligated to become a part of this network and to bind himself to laws. Outlawry is permitted under libertarian principles, but it would be costly: other people perceive in you a much greater risk than with people who have assured that their dealings with others are backed by a system of law, and an outlaw can expect being dealt with much more harshly should he become involved in a dispute than if he had already provided for his disputes beforehand.

Rather than the ideal of a single organization that manages all disputes, including those involving itself, in a libertarian society the framework of law that holds society together would be a network of autonomous organizations characterized by free enterprise and harmony with consumer desire. Different groups would employ systems of law of varying formality depending on how much they are needed. Certain groups may live according to their own idiosyncratic law among themselves, but over society as a whole, given the need of all people to interact smoothly with one another, there would be the tendency toward the unification of law along core principles that permit the greatest ease in resolving disputes and the greatest assurance that individual agreements will be upheld.

Although I think this is a correct description of the development of law in a libertarian society, there is much more to be said so as to give an idea of how a libertarian society might actually work. I have said nothing yet on how rulings are to be enforced in a libertarian society or the nature of a contract that will make it enforceable in the first place. Expect future posts on these issues!

Part 2: The Capitalization of Law

Part 3: The Violation of Rights