Society for the Development of Austrian Economics (SDAE) conference,
New Orleans, 21 – 23 Nov 2015

Abstract: Paying for the protection of our private property contradicts the ethical and economic ideas conceptualizing private property ownership. Because of this, a new system of organization of the police, courts and prisons is suggested. The system is stateless and market-based, i.e. anarchic, and represents an alternative to anarcho-capitalism. The specific structure and organization of the police, courts and prisons is discussed in detail and it is demonstrated how they can function without external support. A comparison with anarcho-capitalism is drawn. It is shown that the suggested system functions according to the rules of the free market.

Keywords: Austrian economics, Anarchism, Ayn Rand

A common problem in the Austrian school of economic thought is the way in which the prerequisites for the existence of a free market, namely the availability of a police force, courts and an army, are to be ensured. A typical solution is offered by anarcho-capitalism, which is stateless and market-based. The aim of the present article is to present an alternative system of organization of the police, courts and prisons from a normative point of view only. Although the suggested system is also stateless and market-based, it differs significantly from anarcho-capitalism. Its structure conforms completely to Ayn Rand’s principle of non-initiation of violence. Comparisons between the suggested system and anarcho-capitalism will be drawn. The particular organization of the police, courts and prisons will be discussed.

1. Ethical Considerations

An assessment of anarcho-capitalism and the suggested system will be performed with regard to their conformance to Ayn Rand’s principle of non-initiation of violence (Rand 1964, ch.1) and its direct consequences, such as the equal treatment of all people.

1.1. Ethical Problems of Anarcho-capitalism

Let us first take a brief look at anarcho-capitalism with regard to how private property protection is organized. In anarcho-capitalism private property owners are clients of a protection services market. In addition, in most cases they pay directly or indirectly for the services they obtain (Tannehill 1970), (Rothbard 1973). However, being the client and paying for the protection of one’s private property engenders several ethical problems all by itself.

Firstly, people do not pay for the police, courts and army because they are eager to use their services, but because unless they do it, their quality of life would deteriorate. Basically, one is forced to pay for these services because the alternative is to suffer losses in the form of stolen property, physical damage (mugging, killing), etc. Unless one takes preemptive action, it is guaranteed that physical aggression would be used on him. The threat of initiated physical aggression is what makes people pay for protection services. However, the anarcho-capitalist solution for countering crime stipulates that private property owners generally pay for crime prevention. In that it proposes a solution in which people yield to the threat of initiated violence and pay to avoid it. However, according to Ayn Rand, markets in which one party acts under initiated violence or the threat thereof are not free. From this point of view, anarcho-capitalism offers a non-free market solution.

Secondly, anarcho-capitalism accepts the supremacy of private property. So, according to this view, if one buys/obtains something by free market means (that is, without the initiation of physical force), then this item is his and his only. However, this leads to another problem. In anarcho-capitalism, people generally pay in order to ensure the continued possession of their property, since they are the clients. This raises the legitimate question: Is any item really yours if you need to pay in order to ensure that it remains in your possession? The latter suggests that the simple act of buying something does not guarantee full possession, which in turn leads to the conclusion that private property rights are contingent upon constantly and incessantly paying for what you possess. In short, if one stops paying for one’s possessions, one’s rights over them disappear. The latter contradicts the initial assumption that once one obtains something by using free market means, it becomes his. In fact, it is never entirely his.

Thirdly, when freedom is obtained through the purchase of a service, as in anarcho-capitalism, the following problem occurs: one gets only as much freedom as one is able or willing to pay for. This is an inevitable consequence of the way the free market works. In a free market, one obtains from a service/goods just as much as one has paid for. Since freedom would be the result of a market transaction, then one would get exactly as much as one has given. The aftermath is that there would be no common standard for freedom, i.e. there would be ‘equal’ and ‘more equal’ people. In particular, those with more money would be ‘more equal’ than others. Taking the above into consideration, we can say that in anarcho-capitalism people will not be equal with respect to their fundamental rights.

1.2. Ethical Solutions

The only way to avoid the above ethical issues is to offer a system in which one is not the client and does not pay for private property protection. In this way, we avoid the aforementioned problems, i.e. i) people do not yield to the threat of initiated violence; ii) once a person buys something, it becomes his own without any other conditions; and iii) the amount of freedom one gets is not contingent on one’s financial status or personal preferences/abilities.
However, if we release private property owners from the obligation to pay for the protection of their own property, who then would pay for the police, courts and prisons? The answer to this question is quite clear from an ethical point of view: the one who has caused the problem, the one who has initiated physical force, i.e. the criminals themselves.

Considering the above, an ethically clean solution for the police organization for instance would be that the criminals themselves pay for the operation of the police. In effect, we would have the police be funded from and by the very act of fighting crime. Thus, when a crime is committed, the police would have the right to catch the criminal and let him pay for its services, for the effort expended in the criminal’s apprehension. This would guarantee that private property owners would not pay for property protection. In such a way a new type of market is formed, one in which the police is on one side and the other side (the client) are the criminals themselves.
In order to make our general proposal clearer, it is helpful to highlight the differences between anarcho-capitalism and the proposed system.

In an anarcho-capitalist market of law enforcement, the private property owners are the clients who pay for protection, either directly to a defense company or indirectly to a private property insurance company (Tannehill 1970), (Rothbard 1973). In the suggested system they are neither the clients nor the ones who pay to the abovementioned companies. Instead, the criminals/law-breakers are the clients of the police and pay for its services.
In the anarcho-capitalist civil law market of judiciary/arbitration services the private property owners are the clients who pay for these services directly or indirectly (to an insurance company) at first. They are either compensated for their expenses by the opposite side when it has lost the law-suit or the insurance company covers their court fees, respectively (Tannehill 1970), (Barnett 1998). In criminal proceedings, the clients of the court are the defense or insurance companies involved. When they win the case, they would also be compensated for their expenses (Tannehill 1970), (Friedman 1979). It is evident that the private property owners pay for the work of the court in all cases, be it directly or indirectly, through having paid the defense/insurance companies beforehand. The possibility that they may be compensated for their expenses does not change the fact that they pay for judiciary/arbitration services, even if for a limited amount of time. In contrast, in the suggested system the private property owners do not pay at all, i.e. no money leaves their pockets or bank accounts at any time. Those who pay for judicial services are the criminals/law-breakers.

In anarcho-capitalism the prison system (also called ‘debtor’s workhouse’) is organized in such a way that the defense/insurance companies are the clients of the prison services, since they are the ones who determine what these services would be. Prisoners do not have any choice or have a very limited choice in deciding which prison they would be placed in, what they would work and under what conditions they would work and live (Benson 2014). The fact that prisoners have the option to support themselves, i.e. pay for prison services by working while serving time, does not make the prisoners into clients. And yet, they are the ones who pay for prison services. So, in anarcho-capitalism the private property owners are generally not the clients and do not pay for prison services. In the proposed system, private property owners are similarly not the clients and do not pay. Instead, the real clients who pay for prison services are the criminals/law-breakers.

This is the fundamental difference between anarcho-capitalism and the suggested social system. In anarcho-capitalism, the private property owners are typically the clients of private property protection services and pay for them directly or indirectly, although in some cases just for a limited amount of time. In the proposed system, the criminals/law-breakers are the clients and they pay for private property protection. The latter is accomplished by making them a party to the market transactions involving the police, courts and prisons.

The structure offered for the suggested law enforcement market raises some legitimate questions, such as:
Since the free market is based on non-aggression, then is the market interaction between police and criminals a free market transaction? After all, criminals do not choose to be arrested willingly. The latter seems to contradict the way in which free market services operate, namely by allowing everyone to freely choose or not choose a particular service or goods. In order to answer the above question from an ethical standpoint, it is instructive to review the definition of freedom. Once again, freedom is the absence of initiated force (Rand 1964, ch.1), so if no force is initiated, then one’s actions are considered free. In view of the above, the interaction between police and criminals, as outlined, is a free market interaction, since both sides act freely. Neither the police nor the criminals are subjected to initiated force. Force is applied to criminals while they are apprehended, kept in jail, etc., but this force is retaliatory/defensive. And since in such a law-enforcement market there is no initiated violence, this would be a free market. It would be a strange kind of market, in which one of the sides (the criminals) does not get to choose who will provide the service but it would be consistent with the free-market principles. No contradiction occurs and the existence of such a market is not proscribed. The proposed market stipulates the only way in which physical force can rightfully be applied.

An interesting consequence of the suggested system is that one gets his freedom ‘for free’, so to speak. In anarcho-capitalism, one obtains freedom through paying for a service, but in the suggested system the ones who use police and court services are the criminals themselves, not the private property owners. In effect, freedom is a byproduct of ‘servicing’ the criminals. It is the result of a market transaction to which private property owners are not a party. One gets his freedom even without asking for it, which is exactly what the definition of a basic human right is, a right which is yours just by virtue of your existence.

2. Economic Considerations

Paying for the protection of one’s private property in any way has negative economic implications. It amounts to a waste of resources, which could have been better utilized elsewhere.
By committing a crime against private property, the criminals force the productive part of the population to spend money not the way it would prefer, but just for keeping/securing what it has. In effect, the money for burglar alarms, fences around the house, etc., could have been used to further improve one’s life, either in the form of investments in new goods/services or for personal satisfaction, such as buying products for one’s home or better health services. Just as an example: Buying a lock for your house does not make your life better; it prevents it from getting worse. You could have bought an item of aesthetic value instead, which in itself would have made your life richer/more enjoyable, or you could have saved/invested the money in order to obtain a future benefit.
In the same way, the money spent for police services in anarcho-capitalism is a forced expense on the part of the private property owners and this expenditure translates into a slower rate of capital accumulation/economic growth. Paying for private property protection makes perfect sense when there is no way to avoid it, because people would be worse off without it, but not so much when the alternative not to pay exists. The latter is what the suggested system offers.

From an economic standpoint, the suggested system would amount to a transfer of economic resources from counter-productive hands into productive ones. The system would punish the people who subvert society without burdening the productive part of the population by forcing it to pay for prisons, for instance.

3. System Organization

3.1. Prerequisites

A necessary and sufficient condition for the suggested system to function is the existence of a pre-established, monopolistic body of law governing a certain land area, whose sole intent is to ensure the protection of private property.

The standard anarcho-capitalist proposal with respect to the organization of the law system is the polycentric law, namely when several law systems exist in parallel in the same geographical area (Barnett 1998), (Friedman 1979). In order to prove that polycentric law is better than its monopolistic counterpart, authors typically draw a comparison with the existing, contemporary structure of the law, i.e. the monopolistic law imposed by the state through the initiation of force. From this comparison they derive the conclusion that the polycentric system would be superior to the existing one. What seems to have been neglected is the fact that monopolistic systems can exist even without the state or in general without force being initiated. The typical example is the so-called market monopoly, namely, a monopoly created by the free market itself. In the same way, the existence of monopolistic laws does not contradict the free market. There is a way that a monopoly of law can exist without the initiation of force being present. This can happen in the following way: A land owner is a private property owner and as such he is entitled to decide how to use his property (land). The latter, however, also includes the rules which are valid within it, the rules which the people living on this piece of land must obey. A good analogy can be drawn with our own homes. In our home we have the right to determine who enters, stays, how our life goes, etc. Therefore, private property owners have the right to determine the laws which are valid on their land. If the said right was denied to them, then this would mean that their land is not theirs only, i.e. that their property is not actually private.
However, private property owners may decide that they prefer monopolistic laws and there is nothing to be done about it if the initiation of force is banned. Similarly, there is nothing which can or should prevent private property owners from joining their lands with those of other owners who share their views with respect to what laws they wish implemented on their property. However, a common set of laws over a given land area forms a jurisdiction.
From an economic perspective, it is beneficial for private property owners who share the same views in regard to laws to join their lands, because the latter increases the size of the market they jointly control. Economies of scale could be achieved in this way. In other words, the market forces would stimulate private property owners with similar views to create jurisdictions of their own (societies/communities) with laws corresponding to their wishes.
Non-owners who wish to live in such a jurisdiction would have the option to either live there and accept the laws, whatever they are, or leave the jurisdiction. The latter would lead to the creation of homogeneous societies, because only the people who agree (or at least accept/tolerate) the imposed laws would remain in the particular jurisdiction.
Thus, the existence of monopolistic laws and homogeneous societies supporting them is not proscribed by the rules of the free market. It should be noted, however, that law creation would have market implications. Land owners would not be free to impose whatever laws they feel like, because people would leave their land if they disagree. Private property owners need people on their land because otherwise there would be no one to produce goods and services. From an economic standpoint, land owners would be dependent on the people living on their land. This would ensure that the land owners in a jurisdiction could create laws only if these laws correspond to the views of a large enough group of people wishing to live under them, i.e. people who approve of them. In such a way different homogeneous societies based on: culture, language, faith, race, lifestyle, etc. can be formed. As demonstrated, the formation of such societies does not contradict the rules of the free market. On the contrary, this means that monopolistic laws can exist without a state, i.e. without the initiation of force.

From this point of view the prerequisite for the existence of the suggested system, namely the existence of monopolistic laws, is fully justified. It should be noted that under monopolistic laws one can ban anything (guns, drugs, for example) without initiating force, simply because in this case all land would be private. The laws created to ban a particular activity, whatever it is, would reflect the preferences of the people who live under them. Thus, laws would be based on the market.

3.2. Police

As already discussed, in anarcho-capitalism the clients of the police/defense companies are the private property owners and they are the ones who pay for police services either directly or indirectly by buying private property insurance. In the suggested system the clients of the police are the criminals themselves and they are the ones who pay for police services.

3.2.1. Organization of the police and its consequences

In the proposed system, the police would finance itself from and by the very act of fighting crime. In particular, when the police captures a suspected criminal, it would send him to court to be sued. If the court finds the defendant guilty, then it would make him pay a market determined price for the expenses incurred by the police. In this way, we guarantee a direct correlation between the level of criminal activity and the quality/quantity of the police. The latter would ensure that the size and organization of the police forces would correspond to the actual crime protection needs of the society. In societies with high criminal rates, the police force would be large and well-organized, because there would be much money to be earned there, but where crime is almost non-existent, the police forces would be barely noticeable. Basically, the volume and severity of crime would determine, with the help of the market forces, a police system of just the right size and organization necessary to successfully counter such crime.

The proposed system allows for the existence of many competing police forces, as in anarcho-capitalism. However, since in our case the police would have different clients (the criminals themselves), some differences in the way the police forces operate would emerge. The most notable one would be the lack of conflict between private police organizations which is inherent in anarcho-capitalism. In anarcho-capitalism, two police forces could have opposing interests if the client of one of them commits a crime against the client of the other, and this could potentially lead to an aggressive confrontation between the two police forces, i.e. the well-known problem of the competing police agencies (Rand 1964, ch.14). Moreover, the police under anarcho-capitalism would very frequently find itself cornered in a situation of conflict of interest. This would happen when one of its clients perpetrates a crime against another of its clients. The problem is that the police would have to arrest a person from whom it obtains money for protection (Nozick 1974). Under the suggested system, such problems among the competing police forces would not exist, because the interests of their clients (the criminals) cannot clash the way they do under anarcho-capitalism. The reason is that the offenders do not have the right to choose who will serve them and how. They can be served by any police force which manages to capture them.

The structure of this branch of the economy would be the same as the ones in the rest of the economy. This would ensure that the conflicts between the different police forces and the way these conflicts are resolved would be the same as everywhere else. In particular, if conflicts arise, for instance if two police organizations argue with each other over who has captured a particular criminal first, then these conflicts would have to be resolved in court. If a police company refuses to go to court and to accept the court’s decision, then it itself becomes a law-breaker. The reason is that there are laws which specify explicitly what behaviors are allowed and what are not. As a comparison: in the standard anarcho-capitalist system there are no compulsory laws valid for everybody; therefore, a defense company which does whatever it wishes is not necessarily a law-breaker. In the suggested system if a police company commits a crime, it would be opposed by the whole of society, since this society is a homogeneous one. Moreover, it would represent a valuable asset to capture legally for all the competing police companies. Under such circumstances, an aberrant police company would not be able to withstand the pressure of all of its competitors and society as a whole, for the simple reason that in order to function it requires society’s approval/support. Such a situation cannot occur under anarcho-capitalism, because there a police company is not necessarily opposed by the whole society.

Even if a police company is a market monopoly or the dominant force, it would not be able to break the laws with impunity. Such a situation cannot happen in a homogeneous society. The contemporary police force can be given as an example. It functions in a society where the vast majority of people supports its way of operation and organization. The police is an absolute monopoly but it dares not overtake the power of the state or oppose/reject the decisions of the courts. From this point of view, the temptation for a police company in the suggested system to drive its competitors out of the market using force would exist as in any other branch of the economy. However, a police company would not be able to act on it for the same reason that prevents competing companies in the other branches of the economy to drive their competitors out of the market by initiating force. There would be sanctions, which would make it behave accordingly, i.e. follow the prescribed laws.

Because of the suggested structure of this branch of the economy, it would be impracticable to try bribing the police. The reason is that firstly, the police is not a monopoly, and secondly, all police forces are interested in capturing all criminals. In effect, one would need to bribe all police forces and probably a large portion of the general population to avoid being arrested for a committed crime. This would make bribery impracticable.

Since conflicts between the police forces would be resolved in court, the police companies would not be forced to cooperate with each other in order to resolve them. The latter shows that the suggested police organization is not a network industry. From this point of view, the criticism in (Cowen 1992) that the police in anarcho-capitalism is a network industry and this by itself may lead to collusion between the police forces does not apply to the suggested system.

3.2.2. Motivation of police

It would be guaranteed that the motivation of the police would be exactly the same as with any other free market sector. In comparison: In the current social system, the police is not motivated to do its job well because there are no standard market-driven incentives. The income of the police is independent of the value of its services; furthermore, it does not bear full responsibility for its actions. Such a situation allows the police not to do its job well and yet not to suffer the full weight of the consequences. Again in comparison: In anarcho-capitalism, the police is motivated to do its job well, but its motivation is determined not by the level of criminal activity but by the subjective perceptions of its clients about it. So, the police would be more concerned with ensuring that the subjective needs of its clients are satisfied than with objectively persecuting criminals. It would be more important how its actions are perceived by the society than how much work it has actually done. In other words, because the police serves private property owners, it would try to satisfy their interests and this would make it efficient from a market point of view, yet this not the same as being efficient in fighting crime. The problem is that the general population would be able to influence how the police does its job, which is wrong because the general population is not an expert in capturing criminals. It just lacks the necessary skills and experience. An apt analogy would be for the general population to try instructing a surgeon on how to perform a brain surgery. Let us illustrate this general problem with an example. Since how much money the police would get would be dependent on the number of private property owners who subscribe to its services and on their willingness to pay more or less, the police would make sure to persecute more vigorously those criminals/cases that have achieved a wider social response in the media. The case of the capture of a notorious criminal, for instance, would bring much more money to their coffers than that of an unknown gangster who has committed similar crimes. Objectively, however, the two cases are identical and should be treated in the same way, which would not happen, unfortunately. Again: in anarcho-capitalism, the motivation of the police forces would be extremely subjective, which would mean: not as effective as we would wish.

Let us now try to evaluate the motivation of the police in the suggested system. The motivation of the police would derive directly from the crime itself, without any intermediary. No preference would be given to conspicuous/important cases unless the general population is willing to pay for them additionally. The only parameter which would be of importance would be the type of crime, big or small, because this would have a direct impact on the money to be obtained from it. The police would try to be as efficient as possible and would not let the rest of the population dictate how it does its job, just as any free-market company would do. As an example: If there is a public gathering, the police in the suggested system would do its best to assess the number of policemen necessary to guarantee the safety of the crowd and deploy just the number needed. In anarcho-capitalism, the number of policemen sent to safeguard the same gathering would likely be much higher than necessary since it would be of an extreme importance that the police presence be noticed by the public and appreciated. In effect, the suggested police organization would adjust objectively to the actual crime protection needs of the society, not to its perceived crime protection needs, as in anarcho-capitalism. This would guarantee efficiency, which is what every market-based company strives to achieve.

Since the police would be motivated by the income it obtains from the criminals, it would be constantly on the lookout for new crimes. It would try to anticipate them, predict them and be where it is necessary in order to capture the criminal. For instance, if there are parts of the city where more crimes happen, then there would be more police presence there. The simple reason is that there would be more work for the police to do there and consequently more money to be earned. Thus, the preventive function of the police would be preserved in the suggested system. What is more, the motivation to prevent would be stronger than the one in anarcho-capitalism. In anarcho-capitalism, the police forces are mainly interested that their own clients are not hurt by criminals, not that non-clients are not hurt. Therefore, criminals who commit crimes outside the region of control of the particular police force would not be of immediate interest to the defense company. In the suggested system, all police forces are interested in capturing all criminals independent of where or against whom they commit crimes. In this sense the interests of all police forces are the same. In anarcho-capitalism this is not the case.

3.2.3. Functioning of the police

When a crime is committed, the police would do its best to find the criminal since this would bring it income directly. In order to get money from a potential criminal, the particular criminal case would have to stand trial, which in turn means that the evidence the police has collected would need to be good enough to result in a conviction. Since the police would incur significant expenses for capturing the particular defendant/criminal, for keeping him in custody and for hiring the services of an attorney to sue the defendant in court, it would have to be convinced that the case it has would stand in court. Because if the latter does not materialize, i.e. if the defendant is acquitted, then the police would not be able to recover its expenses. What is more, if the court does not convict the person detained by the police, the police itself would have to cover the expenses incurred by the opposite side, i.e. it would have to pay for all court services and for the attorney fees of the acquitted. This would guarantee a responsible action by the police. It would not be tempted to arrest people on insufficient charges because such charges would not be accepted in court. So the police would bring a case to court only when the evidence it has is solid. What would actually happen is that the police would take responsibility for its wrong decisions just as every other private company in the economy, by paying for them.

However, if the defendant is found guilty, the police would be compensated for its work by collecting a certain price for its services from the convicted criminal. This price would be determined by the market forces and would correspond to the severity of the crime committed. The mechanism would be explained below, in the discussion on the way the court system functions. However, since the price for the particular crime would correspond to the severity of the crime itself, the police would have indicators as to what is more or less important to the market. In short, police work would be driven by the market system itself. Crimes such as murder would have a high price tag; therefore, they would be high on the priority list on the police. On the other hand, crimes such a petty shoplifting would be quite ‘cheap’, although they may be much more numerous, and consequently they would be of a lower priority for the police. In effect, the market would guide the police in its actions.

Since the police would get paid only when the court convicts a particular person, there would always be a temptation to plant evidence in order to ensure a conviction. The problem is that by doing so, the police itself becomes an outlaw. Such an act would attract the attention of the competing police forces, since this would be a potentially lucrative opportunity for them. The already convicted criminal would always have the opportunity to claim to have been wrongly convicted because of false evidence. The last option would surely minimize all attempts for planting evidence, although it cannot eliminate them entirely.

Due to the desire of the police to minimize its expenses, it would never keep a suspect in custody longer than it is necessary to organize the trial in court. After all, it costs money to support a suspect while he is arrested. Still, if deemed necessary, the maximum length of detention could be codified in the legislation governing the police.
To be able to sue the defendant/criminal successfully, the police would have to hire the services of an attorney. The defendant himself would also be able to get an attorney who will be paid after the court has come to a decision, i.e. the ‘looser pays’ rule would apply. In case the defendant is acquitted, i.e. if it is proved that he was not a criminal, he would not pay at all. The police would have to pay all the expenses. However, in case the defendant is found guilty, he would have to compensate the police and pay all court and attorney fees.

The money to compensate the police would have to be obtained, as already suggested, from the convicted criminal himself. This money could come from the criminal’s savings, from sale of personal property, bank loans, private interest/charity organizations, relatives, etc. and last but not least, from the criminal’s future work in jail. The convicts would be allowed (but not forced) to work while in jail and to repay any debt they have been incurred. In case that the criminal cannot pay the police immediately, the police would have the right to collect its money from the criminal’s income in the future. If the convicted criminal has no property and very little earning power, he may be forced to pay for a long time, possibly until the end of his life.

A typical problem which would arise is that some relatively poorer criminals/law-breakers may not be able to pay what they owe immediately, which could potentially lead the police to persecute the richer ones more vigorously. The latter, however, is not a real problem when people who cannot pay immediately are required to pay the current market interest rate on the amount of money they owe. In this way, from a market perspective, the money which was supposed to be obtained now would be equal to the money to be obtained in the future. Thus, it would be immaterial if the persecuted is rich or poor.

3.3. Laws

The laws in anarcho-capitalism are based on restitution (Tannehill 1970), (Barnett 1998), (Benson 2014). It is correct that in order to protect the private property rights, restitution, i.e. monetary compensation of the victim/injured party for his loses is necessary. Furthermore, it is pointed out that in the current social arrangement, i.e. when a guilty person is kept in jail at the expense of society, one cannot guarantee the compensation of the victim (restitution). Because of this, it is suggested that criminals should work off their debt in prisons (also called ‘debtors workhouses’ or ‘work facilities’). It is argued that the function of deterrence, i.e. disincentivizing future criminals, would be better implemented by means other than the punishment of prison confinement.
What seems not to be considered is that if punishment for deterrence purposes is intended, it can be implemented in the same way as restitution, i.e. when the inmate pays for his stay in jail by working there (or alternatively by using his savings, for example). In this way, punishment can be effected without burdening the society and in this sense it does not contradict the private property rights, i.e. no force is initiated. In short: the existence of laws based on punishment by incarceration is entirely acceptable. The issue of the effectiveness of these laws, as discussed in (Barnett 1998), will not be considered here.

Laws based on retribution as a form of punishment and as a right to which the victim is entitled (Rothbard 1998) are not compatible with the principle of non-initiation of violence, because retribution on a personal level cannot be applied according to some objective criterion. Such kind of retribution means, in effect, that people would take justice in their own hands and would be sued and punished afterwards if they have not performed it properly. The real problem, however, is that if one makes a mistake, for instance uses retribution excessively or even punishes the wrong person, this would mean that society approves of violence initiation. In effect, no attempt to stop the initiation of violence would be made, but responsibility would be taken afterwards. Being wrongly punished, however, is of little consolation to the injured party after the fact. As an example: The wife of a particular man has been murdered. Believing to know who the perpetrator is, her husband kills the suspect (performs retribution), who later turns out to have been innocent. The husband was not able to objectively assess the situation because he was grieving at the time and looking for somebody to punish in order to alleviate his suffering. However, an innocent man has been killed, and this has been allowed, since it has not been discouraged beforehand. In general, no objective criterion for assessment of the situation can be applied when the victim/injured party is allowed to take justice in his own hands. In effect, by accepting retribution on a personal level, one accepts that the initiation of force is allowed to happen.
Another problem with retribution as a victim’s right is that it cannot guarantee an end to the circle of violence. If some of the parties involved believe to have been excessively/wrongly punished, the conflict can go on forever. Such a system cannot put an end to violence.

Laws based on retribution as a right vested in the particular community seem to be compatible with the principle of non-initiation of violence. Since they are applied by the community, it would also be possible to put an end to the initiated violence. It can be argued, however, that such laws would be ineffective from an economic point of view. Retribution in general represents a destruction of the resources available to the particular economy which could otherwise have been used to productive ends. As an example: killing a convicted murderer does not help the economic development in general, because he will not be able to contribute to the division of labor with his work. Letting him work in jail while serving his sentence there would, however, achieve that end. In addition, it should be noted that killing someone as a punishment for murder could prevent him from paying restitution to his victim’s family/relatives.

All of the above leads to the following suggestion: laws should be based on restitution and punishment without retribution (for deterrence purposes).

3.4. Court and Legal Services

In anarcho-capitalism, private property owners may or may not be the clients requesting court and legal services, but they always pay for them directly or indirectly. In the case of civil lawsuits, private property owners pay either directly for court services and may be compensated afterwards if the defendant loses the case, or their court expenses are covered by the insurance company by which they have been insured and to which they have regularly paid. In both cases, private property owners pay for legal and court services directly or indirectly, even if for a limited amount of time in certain cases. In the case of criminal lawsuits, it would be either the defense company or the insurance company of the plaintiff that would pay for court and legal services. If these companies win the lawsuit, they would be compensated for their expenses by the opposite side. Still, as evident, these companies are initially paid by the private property owners and consequently the private property owners pay indirectly for court and legal services.

In the suggested system, the private property owners are not the clients and do not pay for court and legal services at all.

3.4.1. Legal services

Not paying for legal services can be accomplished by organizing the market for legal services in such a way that each crime has a market price. In particular, the suggested system could function in the following way: the criminal/alleged law-breaker is one of the parties to the lawsuit. If he loses the case, he is required to pay a market-driven price to the other party. The latter makes profiting from crime possible. But when crime is a profitable option, private property owners need not pay for the capture/prosecution of the criminal. When the potential for profit is available, there would always be companies/people willing to take part. So, the opposing party in the lawsuit would be the police or law companies or even simply private individuals seeking profit. They would strive to win the particular case in order to obtain the associated market-driven price. The latter guarantees that the victim of a crime or simply a private individual seeking justice need not pay for the lawsuit personally. This would be done by the police/attorney at their own expense. In case they win the lawsuit, they would expect a monetary compensation which would exceed their expenses. As can been seen, in the proposed case the victim/private individual seeking justice is not a client at all and in general is not a part of the market transaction. That is why he would never pay for getting justice. The defendant (a suspected criminal or simply a private property owner) would also be able to get a lawyer to defend himself in court free of charge. The latter would happen because the incentive of profit would serve the defendant as well. In case of an acquittal, the claimant would have to compensate the attorney of the defendant for his expenses. In case the defendant loses the lawsuit, he would have to pay his attorney for the effort expended in defending him. In addition, the convicted person would have to pay the claimant the market price for the particular crime. As can be seen, the defendant would pay only if proven guilty.

The discussed market mechanism guarantees that people who are victims of crimes do not have to pay anything for legal and court services. In such a situation it is totally irrelevant how rich or poor they are. The opposite side (the defendant) would also not be obliged to pay anything if not guilty.

Since the prosecuting lawyers would pay for court services and possibly for the expenses of the other party if they lose the case, this would guarantee a responsible handling of all cases. Lawyers would try to estimate if the case they are about to undertake has enough supportive evidence to be won in court.

The number and specialization of lawyers would be determined by the demand of the market itself. When there is more money to be made by suing potential criminals/law-breakers, more lawyers would tend to enter the profession. Similarly, if the level of crime/law-breaking was low, there would be relatively fewer lawyers on the market, because the amount of money to be made would be lower.

3.4.2. Court services

The court system would be a free-market one. This means that its size, structure and the organization according to which it would function would be determined by the market. In order for this to happen, the funding for the court system needs to come from the market itself.

In the current social system judges are paid by the state. The idea behind such a structure is that judges need to be independent of the two conflicting parties. Because of their independence, they are able to impartially judge on the particular case. However, what is necessary is that judges be impartial, not independent. Independence of the two conflicting parties is just one way of ensuring impartiality. Another possible way of achieving impartiality is for the judges to be chosen by both parties equally, as suggested by many authors. It follows from the last requirement that judges cannot allow themselves to be partial or even to appear partial, biased toward any of the conflicting parties. If a judge is known to be biased toward one of the parties, he would never be chosen by the other one. In effect, for the judge to be chosen, he would need to be and appear as impartial as possible, since this would be the only way for him to win clients. Since the conflicting sides would be free to negotiate with each other as to who is to handle the particular case, they would have to come to a mutual compromise about the choice of a judge.

In the context of the suggested system, if for some reason the above does not materialize, i.e. if both parties cannot agree upon a judge or if the defending side flatly refuses to choose one, then the laws governing the particular jurisdiction would have to offer a solution. There may be multiple solutions to this problem and any one of them may be chosen, as long as the case reaches the court, so that justice can be served. For instance, the judge to hear this case may be chosen at random from a list of prospective judges. The qualifications, number, etc. of these judges may be regulated by the laws or left open. Or a single, well-known judge may be chosen. The number of possible correct solutions is unlimited.

In the proposed system, the manner in which judges are paid would be irrelevant. They may be paid by both sides (attorneys) equally or just by the losing party (‘the loser pays’ rule). It is up to the market to decide on this. In any case, the judge would be equally dependent on both parties, which would guarantee impartiality.

Since the suggested court system is market-based, the number, qualification and specialization of the judges would be decided by the free market. This suggests that there would always be a sufficient number of qualified judges to satisfy market demand. If there is a shortage of judges, then the price for their services would rise and this would stimulate new ones to enter the profession. When there is an excess of judges, the prices for their services would go down and some of them would leave the profession in search of more lucrative opportunities. At the same time, the manner in which they would operate and the overall structure of the court system would be as efficient as possible, since it would be dictated by the market forces. There would be a market demand for judges whose fees are low and whose services are of high quality (a quick, well-justified ruling, for instance). So there would be market pressure for the judges to provide high-quality services at prices as low as possible.

The task of any judge would be to come to a decision about several distinct problems:

a) If the defendant is guilty, the judge would have to decide how he is to be punished, for example the length of his prison term, based on the particular criminal code. Such a punishment is necessary in order to deter future criminal acts. It would have to be completely unrelated and independent of any other payments the criminal would have to cover.

b) The judge would also have to rule on how the criminal is to pay restitution to the private property owner who has suffered damage as a result of the particular criminal act. The latter is very important, because only thus could private property be regarded as really private. In effect, what would happen is that the damaged private property would be restored from the criminal’s property/funds/future work. In this way, private property would move from counter-productive hands into productive ones. So, aside from being punished (with a jail sentence, for instance) for his crime, the criminal would be made liable for any losses he has caused (pay restitution).

It may be the case that the criminal has caused bigger losses than he can reasonably repay. Such losses would never be compensated in full and should be accepted in the same way as natural disasters such as hurricanes, earthquakes, etc. The latter cannot be avoided in any social system, because they are a force of nature. Still, the owner of the particular property must be compensated in the best way possible. This may or may not include for the criminal to pay for his wrongdoings not only while in jail but possibly for the rest of his life.

c) The judge would have to decide on the monetary compensation to the police/lawyers for the capture, detention and suing of the criminal/law-breaker. This would entail the formation of market prices for the different types of offences, as explained below.

After the court reviews the case, it would issue a verdict. If the criminal/law-breaker does not comply with it, he would be persecuted/prosecuted by the police/lawyer companies again for not complying with the court decision. The monetary compensation which would be due for not abiding by the court’s decision would guarantee their continued interest. In such a way the court needs only issue a verdict which the market itself would impose.

An interesting consequence of the suggested organization of the judicial services is the following: In anarcho-capitalism, the private property owners are the clients of the court services. The latter may be a problem in a murder case, when the murdered person has not left instructions in his will on how to handle this particular situation and has no relatives to demand justice or his relatives are simply no interested in prosecuting. Such a problem could never arise in the suggested system of organization, since the right to pursue justice belongs to the society/community, as is in fact the situation nowadays. There would always be companies/individuals willing to pursue justice for a profit.

3.4.3. Formation of market prices for different types of offences

The court would be responsible for ruling on the remuneration of the claimant for its services if the defendant is convicted. For this reason, the judges would have to balance between the interest of the police/lawyers and those of the convicted. If a judge does not pay the police/lawyers enough to compensate for their expenses and generate some profit, he would never be chosen by them. At the same time, if the judge makes the criminal pay too much, he would never be chosen by the particular criminal. This, along with the specific criminal code stipulated by the laws of the jurisdiction, would lead to the formation of market prices for the different types of offences. In effect, the judges would be an active party to the price formation process. They would have a vested interest (a monetary one) that all types of offences defined in the criminal code are prosecuted and therefore, they would strive to raise the specific prices of the offences so that the police/lawyers are motivated to catch and sue the perpetrators against the particular rule of law. At the same time, however, they would not be able to raise the prices as high as they wish because they would be bound by the competition for clients, in particular for the criminals, who are an active party in choosing the judge for the case. The defendant would surely choose a judge who typically rules low police compensations. Since the profession of judge would be open to new competition, this would by itself limit any attempts to raise prices too high.

It is very likely that the market prices to emerge from this interaction between the police/lawyers, judges and defendants would correspond to the severity of the cases as defined by the criminal code to be used. In effect, the market price for a petty theft would be much lower than the market price for a murder. This would guarantee that the police treat the murder case as the one deserving more attention because of its importance for private property protection. In effect, market prices would prioritize the offences with respect to their severity.

3.5. Prison System

A typical anarcho-capitalist proposal on how the prison system could be organized is the following: When and if a person is convicted of a crime, he is sent to a private jail by the defense/insurance company which has successfully prosecuted him in court. In jail, he would have the opportunity to work, in particular to choose between different types of jobs offered at the particular place. By working, the prisoner would be able to pay for his prison expenses and pay restitution to the private property owners affected by the crimes he has committed. It should be noted that the prisoner would support himself, i.e. he would pay for his stay in jail and thus he would not be a burden on society. In this arrangement, however, the prisoner is definitely not a client, because it is not he who chooses which jail to serve his sentence in. In comparison, in the suggested system the prisoner is both the client and the one who pays for his stay in jail.

3.5.1. Problems and solutions

The anarcho-capitalist proposal leads to several problems. They stem from the fact that since the prisoner is not the client, a prison is chosen for him, i.e. the prisoner has no way to influence the behavior of the prison system.

The first consequence of the above is that prisoners would typically be treated as dependents, not as clients, similarly to the present situation, and therefore they would sometimes be mistreated. Nowadays, the latter takes the form of prison guard brutality and inter-prisoner violence. It is suggested that, since in anarcho-capitalism prison guards would be kept more stringently responsible for the brutalities that may occur, this would solve the problem. If the latter actually occurs, it might improve the situation as compared to the current prison conditions, but it could not by itself generate a sustained interest in the prisoner’s well-being, as is usual for the clients of all other branches of the economy. Even if the prisoner works in jail and his particular employer is interested in his well-being, this would have no significant effect on the prison system. The reason is that the interests of the prison system and those of the employers allowed to function there may not coincide. The prison system would try to satisfy the interests of its clients, namely the defense/insurance companies, not those of the inmates. In short, since the prisoners are not clients, the prison institutions would have no vested interest in resolving the above problem by themselves.

From another point of view, the primary purpose of imprisonment is to punish the criminal for his wrongdoings by limiting his access to/separating him from society. Punishing the criminal by subjecting him to bad living conditions has never been the original intent of the law, but this is what happens in reality because the prison system nowadays has no motivation to offer adequate and acceptable living conditions. Again, there are no market-induced incentives for this to happen because the prisoner cannot choose the prison and thus influence the conditions offered there. He is not the client. Similarly, in anarcho-capitalism, the choice of what the conditions in a prison would be is left to the organizations that have sent the prisoner to jail. The problem again is that the interests of these organizations and those of the prisoners do not coincide. The defense/insurance companies would be mainly interested in minimizing their expenses, whereas the prisoners would clamor for improvements in their living conditions.

The suggested system solves the above-mentioned problems by changing the very clients of the prisons. In particular, as clients the prisoners would be able to choose in which prison to go and pay for their stay there in any way they can, i .e. they can pay for their stay in jail with personal funds and/or work while in jail. This option would significantly change the relationship between prisons and inmates. In effect, the prisoners would become cherished clients to be taken good care of, because they would be the ones to pay for their stay. Prison brutality would be virtually non-existent since prisons would be highly motivated not to allow them. In addition, since the system would be market-based, the quality and quantity of its services would be defined by the market, which by itself guarantees constant improvement and updating of the living conditions and, in general, continuous development.

Similarly to the anarcho-capitalist proposal, prisoners would be able to contribute to society with their work even while in jail. Thus, rather than a burden on society, they would be productive citizens.

3.5.2. Functioning of the prison system

In the suggested system the convicted criminals would be allowed to choose the prison they would like to go to. However, their choice would be limited to just where to serve their sentences, not if. There is no problem if the criminal code defines different classes of prisons with a range of limitations on the prisoner’s access to society. The prisoner would just have to choose a prison in the respective class, as given in the judge’s ruling.

Since prisons would be dependent on the number and wishes/financial situation of their clients, the number and quality of prisons would be directly determined by the needs of society. If there are more would-be prisoners, more prisons would appear, if less, their number would decrease. The quality of the services in jail would be determined by the criminal code in the first place and secondly, by the prisoners themselves. However, there would be a general tendency for the prisons to develop and offer modern, cheaper and better services as any other private company in the market economy would do. Competition would drive them. If, however, a particular prison is tempted to offer more amenities/freedoms than stipulated in the criminal’s sentence, then this prison could be sued by the police for breaking the law. The monetary reward from suing the particular prison would guarantee that the police would closely monitor the inner workings of the jails.

While in jail, prisoner would have all the rights normal people have, except the ones postulated in the particular laws/sentences. The prisons themselves would be motivated to offer everything not forbidden by the ruling of the judge/criminal code.

Working while in jail would be common and ordinary. Still, if a criminal has the funds to support himself in jail by paying for his stay there without working, then this would be allowed. The prisoner would enjoy as much luxury/goods/services as he is able or willing to buy, as long as these are not forbidden under the conditions of his sentence. Working in jail would usually be necessary for the prisoners to support themselves. The market itself would offer incentives to the prisoners in the form of better living conditions, so that most of them would willingly choose to work. Work may even be necessary just to repay the debts one has, in particular when one has to pay the police for its services and the compensation for the committed private property violation.

Prisoners would be able to choose prisons matching their financial situation or earning power. Still, it is very likely that some of the prisoners would refuse to work despite being unable/unwilling to support themselves while in jail. Those would most likely be transferred to minimum-amenities jails. Hopefully, when they see the big difference between the lifestyle the working inmates would be able to afford and their personal situation, they would be incentivized to start working. Such minimum-amenities jails would have to be supported by either the prison system itself or by charity organizations, private companies, etc., i.e. without burdening society. It would be in the prison system’s best interest to support minimum- amenities jails for which prisoners do not pay and consequently receive the bare minimum of services necessary for their survival. Experiencing the difference between what one gets without working and the privileges extended to the productive inmates would be a very good, market-based incentive to start working and be transferred to a better-quality jail. Criminals too dangerous to be allowed to work and people unable to work will have to rely on the public for support while in jail.

4. Conclusions

A new system of social organization has been offered. This system conforms fully to Ayn Rand’s idea of non-initiation of violence. However, the proposed system differs significantly from the anarcho-capitalist social organization. Here the people who always pay for crime protection are the ones who have caused the problem in the first place, i.e. the criminals themselves. In this way society would be able to achieve a quicker economic development, since the productive part of the population would not be burdened with expenses for the police, courts and prisons and the convicted criminals themselves would be converted from counterproductive to productive ones. The proposed system ensures the freedom of its citizens for free, since they never pay for law-enforcement. Freedom in this case corresponds exactly to the definition of a basic human right, namely a right which is yours just by virtue of your existence.

New, market-based structures of the police, courts and prisons have been offered. The police/law-companies would be allowed to finance themselves directly from the criminals. The courts would be able to finance themselves directly from the police/law companies, thus avoiding the necessity of state or private property owner support. The prisons would be funded and chosen by their customers, i.e. the prisoners themselves. The latter would ensure that the prisons function in full compliance with the principles of the free market.



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