Law Without the State In daily life today In many societies, past and present In the future In Realspace In Cyberspace

As it Now Exists Around Us Systems of private norms Why I don’t teach class stripped to the waist Kissing as greeting: Brazil vs Hollywood A system of rules, enforced by social pressure International arbitration Every family Sign: “Becca’s Room Stay Out!” Directed at her younger brother Enforced by the threat not to play with him

Standard Modern Model of Law Law made by Legislature and/or judges Detection and prosecution of offenses Public for criminal law—police and prosecutor Private for tort law Disputes resolved in government courts Verdict enforced by government

Feud Law: A Different Model Law enforcement private and decentralized Historically common Arguably most legal systems started that way “Feud” has nothing to do with “feudal” The words sound the same but are unrelated In meaning and origin

The Logic of Feud Law If you wrong me I threaten to harm you Unless you compensate me

For it to Work It Needs Some mechanism so that the threat is more believable when you have wronged me So that right makes might Commitment mechanism To make the threat believable even when costly And even after the victim is dead Mechanism to protect those too weak to believably threaten retaliation Some way of ending feuds

Mechanisms for Right Makes Might Saga period Iceland: Legislature, laws, courts Rominchal gypsies: informal norms, friends support you if you are in the right, not otherwise Somali: Traditional law, ad hoc court mechanisms All of these solve two problems Prevent the use of threats for deliberate extortion And prevent individuals from acting as biased judges in their own case For details of these systems see Legal Systems Very Different from Ours Draft webbed on my site: daviddfriedman.com

Commitment mechanisms Pre-human: Territorial behavior in birds and fish Human internalized commitment: Vengefulness Human external commitment: Maintain reputation to deter rights violations Being a wimp is shameful, loses status Success gains status, which is why there are volunteer enforcers in Icelandic, Commanche Enforcing your rights after you are dead Kin inherit your claim, enforce it, or … Pre-arranged group does it: “diya-paying group”

Protecting The Weak Icelandic Solution Somali Solution Tort claims are marketable, so … If I don’t have the resources to enforce my claim I transfer it to someone else who does Somali Solution Group formed by a mix of kinship and contract Whose members share the right to collect damages And the obligation to enforce claims

Termination of Feud What happens if Icelandic solution Somali solution I think you wronged me, you disagree You refuse to pay damages, I harm you You view that as my wronging you, so … Threaten to retaliate if I don’t compensate you I disagree, refuse … Endless feud? Icelandic solution Somali solution Finnish Gypsy solution

Kaale (Finnish Gypsy): Icelandic Find someone powerful with a good reputation Ask him to arbitrate Accepting his verdict does not make you look weak Rejecting it gives you a new enemy Most feuds terminated quickly by court verdict or arbitration Somali Ad-hoc courts, local enforcement of verdicts When too many people were being killed, both sides agreed to raise the diya (damage payment for killing) Kaale (Finnish Gypsy): Feuding families avoid each other until everyone has forgotten what they were feuding over

Underlies Many Legal Systems Anglo-American common law came from Anglo-Saxon law, which was essentially Icelandic system plus a king Rabbinic law has evidence of fossilized feud The role of the “Avenger of Blood” Evidence of self-enforcement of claims Islamic law (fiqh) includes jinayet Law for killing or injuring A claim by the victim or his kin for Damages or retaliation Roman law: 12 tables appear to refer to self help remedies Early republic, plaintiff must drag defendant to court Verdict gives him a right to seize, sell or execute, defendant

The Future: Law Without Government Private firms sell the services of protecting their customers’ rights Settling their disputes Each individual the customer of such a firm How do we handle conflicts between customers of two firms? I think you stole my TV, you deny it My firm threatens force against you You ask your firm for protection Violent conflict?

Violence is Bad Business If we settle conflicts by violence Have to pay our workers for the hazard Customers don’t want a shootout in their front yard Nobody knows if his rights will be protected Cheaper to agree to arbitrate Pick a private court, both firms agree To accept its judgment in future conflicts What enforces that agreement? The discipline of constant dealings: Repeat players If I don’t accept the verdict when you win the case You won’t accept it when I win We are back fighting each other, and Lose our customers to more sensible firms

Who Makes the Law? Legal rules are part of the package That the arbitration agency sells its customers Who sell it to their customers So the arbitrators offer the rules the enforcers want And the enforcers want the rules their customers want Easy case: A change that benefits customers of both firms Harder case: A change one firm wants, the other doesn’t How much is it worth to firm A to get its preferred rule? How much is it worth firm B to get its preferred rule? Whichever is larger gets its rule, compensates the other The result: The pattern of legal rules that Maximizes the total benefit to those the rules apply to Economically efficient law

Compare to Democracy No incentive for voters to be well informed My vote does not determine the law I am under Or how well it is enforced So why pay the cost of figuring out what is better? Almost impossible to compare the alternatives I can’t compare the Obama administration of 2012 To the McCain administration of 2012 On the market, on the other hand I can compare one car to another, or … The law and enforcement my neighbor gets to what I get And it pays to compare, because what I choose I get

Is Market Anarchy Libertarian? The logic of the situation implies that The legal rules will tend to be The rules that maximize total benefits to all affected Economically efficient law Will that be law that respects liberty? If enough people are willing to pay enough for oppressive law, the market will produce it. But on average, liberty is economically efficient It rarely is worth as much to me to violate your rights As it is worth to you not to have your rights violated

Comparing Anarchy to Government In each case, don’t assume outcomes Ask not what laws you want from government But what laws you can expect to get from government And from anarchy Under anarchy The people who produce law have an incentive to produce good law The people who enforce law, an incentive to do it well Under government, neither is true Just like the comparison between market and government in producing cars or food

Possible Problems Defense Against Nations Cartelization of the rights enforcement industry Market failure on the market for law

National Defense Defense against nations is a public good If I stop an invasion or shoot down a missile My neighbors share the benefit So how does it pay me to do it? Some public goods get produced privately Tipping taxicabs (in the U.S.—don’t know about Brazil) Charity Indirect benefits: My web page For a discussion of ways this might be produced, see my first book The second edition is free on my web page The third edition is $2.99 as a Kindle on Amazon

The Cartelization Problem If there are only three rights enforcement agencies They might decide robbery is more profitable than business Agree not to compete for customers Raise the price—because you have nowhere to go Reinvent government How many agencies there are depends On economies of scale in the rights enforcement business If the optimal size firm is 1/100th of the market End up with 100 agencies, no cartel

Market Failure on the Market for Law If you agree that I can sue you for polluting my air My firm cares how much that is worth to its customers Your firm cares how much it costs its customers Neither cares how much it is worth to customers of other firms Including ones living downwind of your factory Who will be benefitted if my lawsuit makes you reduce your air pollution So the firms may agree that I can’t sue you Because that produces net benefits for their customers But net costs overall More generally, if the legal rule between A and B Produces costs or benefits for C The market may fail to produce economically efficient law The same problem on the market for law that economists recognize in other markets So the result is not always efficient law, but … That problem is the exception on the private market, the rule on the public market

Anarchy in Cyberspace Public key encryption makes possible a world Where all communication is private Where nobody knows who pays whom what Or who is talking to whom Hard to tax or regulate things you cannot see Contract enforcement is done by reputation Digital signatures make it easy to find out Whether I agreed to a contract Who I agreed would arbitrate it Whether I obeyed the arbitrator’s verdict So Market anarchy may develop, arguably is developing, online

Suppose We End Up With Anarchy in Cyberspace, Government in real space In a world where most stuff happens online People mostly work online Mostly buy digital goods Mostly socialize online via virtual reality It is now very easy to move Since you take your email address and URL with you If one government doesn’t treat you right… Vote with your feet Governments are now just landlords

For Much More On All This My Web Site: www.Daviddfriedman.com Contains links to: The Machinery of Freedom 2nd edition, free pdf 3rd edition $2.99 Kindle on Amazon Legal Systems Very Different From Ours Draft webbed for comment on my site My blog: daviddfriedman.blogspot.com http://daviddfriedman.blogspot.com.br/ Whatever I feel like talking about