There are two main schools of thought in the Austrian School of Economics with respect to how a purely capitalistic society must be organized.

The first one is represented by the  minarchists, who believe that the functions of state must be minimal and  restricted to police, courts and military. And since these services are  state-run, they should be supported  by taxes. Minarchists acknowledge that this solution is not optimal because from an ethical standpoint, taxation is an application of force, and  from an economic point of view, it decreases economic growth. However, they do not see a better solution.

The second school of thought is represented by the anarcho-capitalists, who think that the state should not exist at all and that police, courts and military should be run by the free market. People would pay for them directly as separate services or indirectly through insurance companies.

What the two views have in common is that the owners of a particular property would pay for its protection either indirectly (through taxes) or directly (through buying protection). Ethically and economically, however, paying to protect  your own property is not right.

From an ethical point of view, both schools view stealing  and in general encroachment on private property as a crime. Because such crimes do exist, one is forced by the circumstances to pay for the protection of one’ own possessions. However, being forced to do anything is ethically wrong, because it represents an initiation of force. Moreover, if you pay to ensure the continuous possession of a particular item,  then this means that this item  is not entirely yours, you are paying and will continue paying in order to retain it. Such a situation contradicts both schools’ belief that private property is a basic human right.  If private property is a basic human right, then why do you have to continuously pay for it?

From an economic standpoint, paying for the protection of your possessions is a waste of resources. One could use the money spent for protection for other purposes, producing new and improved goods and services, so that his life and the lives of the people around him would get better. Instead of paying for steel doors, burglar alarms and high walls around the house, one could invest in a new business, buy things for the house or just make life more enjoyable by treating oneself to a trip to Paris. Paying in order to have what you already have is a waste of resources!

The solution to the above problem is quite simple. Breaches of private property must be indemnified by the one who violates the property, not by the one who owns it. This means that when a thief steals something, he must pay for his own capture by the police, for the judge, for his stay in prison and, of course, for compensating the owner of the stolen property. Such a solution would allow the police, courts and prisons to fund themselves according to the laws of the free market. That is, they would operate as private companies and be subject to the laws of supply and demand.

As I said, the above idea is simple, but because it is completely  new, it is difficult to come to terms with. It contradicts contemporary reality and therefore, it must be discussed in detail. It is difficult for  people to imagine situations for which there are no analogs in their lives. That is why I will examine how this could be implemented in detail, i.e., how a society can be organized in which one does not pay for the protection of one’s possessions. But since the protection of private property is guaranteed by the existence of the police, courts and prison system ( and the army), I will explain how these institutions could be organized without one being forced to pay for them.

First, the police. At present, the police is financed by taxes but in the proposed new societal organization it would finance itself from and by the very act of fighting crime. It is not society that should pay for the work of the police but the criminals. From an ethical viewpoint, this is absolutely right. People should bear full responsibility for their wrongdoings. What this  ensures is that the size and the organization of the police forces would always meet to the crime protection needs of a society. In societies with high crime rates, the police force would be stronger, better organized and better equipped, and where crime is almost nonexistent, police presence would be hard to see. The size and the organization of the police force would be determined by the market forces. And all this would be possible just because we would have declared criminals fair game. Crime would become a source of income for the police and that in turn  would make the crime in itself  a very costly and risky undertaking indeed.

In particular, the police could function in the following way: The police captures a suspect and sends him to court. If the court finds the person guilty, then the criminal would have to pay for the expenses the police has incurred  plus a market-determined profit. If the court finds the person not guilty, however, then the police would not be paid. Whatever expenses it has made (for capturing the suspect, for keeping him under  arrest and for a lawyer to sue the suspect), it would have to cover itself. What this guarantees is that the police would have to be sure that there is enough and convincing evidence before somebody is sent to court. If the police makes a mistake, it would suffer. It would have to accept the consequences of its own actions, right or wrong. This is how every private company functions. Just as a comparison: nowadays, the police does not take responsibility for its own actions or if this happens, it is only partially. If a person is arrested by mistake, for instance, the police does not pay, society pays. The result is that the police nowadays does not care much whom it arrests and why would it care, since there are no consequences? In the proposed police system, the police would function like any private company and, therefore, would be motivated to do its job well, because only thus would it be able to exist and prosper. In such a system, there could be thousands of police forces in competition with each other. And because of the market forces, the forces of competition, the police would have to improve and develop itself like any other private company.

Let us once again compare this situation to the contemporary reality: Nowadays, the structure, organization and equipment of the police are determined centrally. Such central control is ineffective and the result is that the police is under-  or overstaffed, badly equipped and badly organized, and so in many cases lagging behind   organized crime. Such a situation could never occur under the proposed organizational system.  Furthermore, my system solves one of the main problems of the anarcho-capitalists, namely the problem with the competing police forces. According to the anarchistic view, one could hire a police force for protection. However, what happens when this person  commits a crime?  He would be protected by the police even if he is guilty. In order for him to be punished, a larger opposing police force would be necessary to successfully defeat his protective forces.  This could result in an open war between the competing police forces. Such a situation is non-existent in the proposed police system, since all the police forces would target the same potential criminals and would not be opposed to each other. They would behave as any other private company nowadays.  In reality, private companies are in competition with each other to serve a common client, they do not serve two or more clients with opposing interests.

Having discussed the police, we can now continue with the court system. The court system would be market-based. What this means is that the number of judges, their respective specializations, etc., would be determined by the needs of the particular society. However, this could happen only if judges are paid by the market and so are subject to the market forces. In comparison, currently judges are paid by the state and this means through taxes.  Of course,  the court system is centrally regulated, which in turn leads to problems such as: high expenses, understaffing, long delays (years) for a decision/conviction, etc., that is, all the typical problems any centrally organized system suffers from. However, a judge in the proposed judiciary system would be paid by his clients and they would be  the police and the accused in the case of criminal law and the two separate private citizens/organizations/companies in the case of civil law.  With civil law, the situation would be more or less similar to the current one, namely, both sides would pay the judge for reaching  and issuing a decision. The only difference is that they would have to pay the full court expenses. In the present system,  a significant portion of judiciary expenses is paid by the state. What people may find hard to accept is that such a system could also function in the case of criminal law. That is, the judge would be paid by his clients, who in the case of criminal law are the police on the one side and the accused on the other.  Such a situation would be considered preposterous and impossible by most people , because how it can be ensured that the judge would be impartial if he is paid by the clients, that is, when he is dependent on them. In order to answer this argument, let us first review how the current judiciary system functions.  Judges are paid by the state so that they can be independent, which in turn makes them impartial when they rule on a case.  However, the end goal is not to make judges independent but impartial. In the present system, we try to achieve this impartiality of the judges through their independence from the two contending parties. However, the real objective, as I already mentioned, is impartiality and in order to accomplish this, one does not need to be independent, it can also be achieved when the judge is equally dependent on both sides. Let me reiterate, since this is an important concept. We strive for impartiality, not independence. Independence is just one way of  reaching  impartiality. There are other ways too. For instance, when the judge is paid equally by both sides and chosen by both sides. And this is what I suggest. The police and the accused should pay in equal share for the work of the court. One cannot let just one side pay for the court, for instance the police, because then the judge would be tempted to uphold only the interests of the police and not those of the accused. So, the choice of who the judge would be and the payment for his services would have to be a joint decision between the police and the arrested person. They would both have to come to an agreement about who the judge would be. An interesting consequence of this is that a judge in such a situation cannot allow himself to look partial. If he is known to rule predominantly in favor of the police, then no accused person would choose him under any circumstances. Such a judge would be soon out of business.  He would have to strive to be and appear as impartial as possible, so that both sides would agree to hire his services. But what happens when the two sides cannot reach an agreement? Then the laws must provide a solution, for instance,  the judge could be selected at random from a list of prospective judges.

What the two sides, namely the police and the accused  have in common is that they both want the court to be as effective as possible and as inexpensive as possible. Consequently, they would look for judges whose fees are lower 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 judges themselves would set their fees high enough that they would be interested in working as judges and low enough to suit their clients.  In effect, the prices for ruling on a case would be decided by the market forces.

Once a judge has reached a decision about whether the accused person is guilty, he would have to decide about the expenses of both sides. If the accused is found not guilty, then the police would have to cover all of its expenses itself. If, however, the accused is found guilty, then he would have to pay the expenses of the police. Here comes the interesting part: The judge would have to balance between the interests of the convicted and those of the police. The police would want the criminal to pay as much as possible but the interests of the convicted would be exactly the opposite. A judge who does not cover the expenses of the police plus some market-defined profit would never be selected by the police. At the same time, a judge who makes the convicted pay a lot would also never be chosen by the accused. As I already mentioned, a judge would have to find a balance between the interests of the two contending parties. This, in my opinion, would lead to market prices for the services of the police.

Lawyers are also a part of the judiciary system. Their number and specialization (civil, criminal law or both)  would be determined by market demand. Lawyers would be paid by the police or by the accused to represent them in court. In cases of civil law, they would represent the two contending parties. If somebody could not afford a lawyer, they would have to find one who is willing to be paid later (through work of the accused in jail, through bank loans or if not guilty – by the party which has lost the case).

Another part of the judiciary system are the prisons. The prison system would also be market-based. They would be and act as private companies which offer a service, namely “punishing criminals”. Their clients would be the prisoners themselves, who would pay for their stay in jail.  The prisoners would have a say in the matter of the prison they would like to go to, but their choice would be only limited to “which one”, not whether to go there or not. Basically, prisons would be in competition with each other to be chosen by the convicted.  They would try to offer better services, namely living conditions, so that they could attract prospective clients. This would guarantee market pressure for improvement, something which is nonexistent today in the prison system. And when the criminals pay for what they get, they would be treated with respect. Prison guard brutality and prison violence in general would be virtually nonexistent.  It is instructive to mention that according to the intent behind the law, the purpose of prison is to punish the criminal by limiting his rights, that is, by separating him from society. It has never been the intention to punish a criminal by subjecting him to poor living conditions. This happens almost always today when a criminal is sent to a low-quality prison.

Since prisons will be paid by the criminals, their number would be determined by the crime rates themselves. That is, the number and quality of prisons would be determined by the market.

A prisoner would have to pay for his stay in jail. Just as a comparison,  today prisoners are a severe burden on society, since it has to pay for their stay in jail. In the proposed system, however, if a prisoner has enough money to pay for the services of the prison, then he would be there like at a hotel. However, if the prisoner does not have enough money to pay for his stay in prison, then he would have to work while there in order to pay for his stay. In a purely capitalistic market society, jobs would be abundant and it would always be possible for a prisoner to work in jail. In fact, instead of a burden on society, criminals would be productive citizens, albeit with limited human rights.

So far, we have discussed how the police, courts and prisons would function. It is, however, interesting to take a look at the situation from the point of view of criminal activity. What would actually happen is that committing a crime would become a very expensive and risky undertaking.

In the present system, when a criminal is convicted, he does not have to pay for his conviction, for police services and for prison stay. This is provided free of charge by the society. In the proposed system, the criminal would have to pay. Moreover, he would have to pay for all of the above, plus compensate all damages caused by his criminal act. For instance, if he has broken into a house and stolen something, he would have to compensate the house owner.  What would be worse for him  is that he would be liable with all his property and if unable to pay out while working in jail during his prison sentence, then he would have to continue paying  after he is freed. If the criminal has caused very significant damages, he would have to pay for them  for the rest of his life.

Furthermore, crime would be a very high–risk venture because everybody would be out there to get the perpetrator. The police would be very highly motivated to do its job right (which is not the case nowadays) and in general, everybody would want to catch him, because there would be a reward for apprehending the criminal. The bigger the crime, the bigger the reward. The police would surely pay for any information which could help them. Those who have suffered due to  the criminal act would also want the perpetrator caught, because only so would they be compensated for their loses.

In conclusion, I would like to summarize the main ideas of the article. 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, which does not suffer from the main drawbacks of the minarchistic and anarcho-capitalistic  proposals.  It allows these organizations to function without the financial support of the state (as in minarchism) or of the owners of the private property (as in anarcho-capitalism). The structure and organization of the police, courts and prisons was discussed in detail and it was shown that they can function without external support, despite the ostensibly obvious but incorrect counterarguments. All this would allow society to function according to the rules of the free market. This in itself would lead to an optimal use of the resources of the particular economy. The proposed idea does not require the levying of taxes or the existence of a state as such in order to function. The only external information which is needed would be the particular laws which would regulate it.