Enterprise of Law: Justice Without the State

Enterprise of Law: Justice Without the State

by Bruce Benson

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In the minds of many, the provision of justice and security has long been linked to the state. To ask whether non-state institutions could deliver those services on their own, without the aid of coercive taxation and a monopoly franchise, runs the risk of being branded as naive anarchism or dangerous radicalism. Defenders of the state’s monopoly on lawmaking and law enforcement typically assume that any alternative arrangement would favor the rich at the expense of the poor—or would lead to the collapse of social order and ignite a war. Questioning how well these beliefs hold up to scrutiny, this book offers a powerful rebuttal of the received view of the relationship between law and government. The book argues not only that the state is unnecessary for the establishment and enforcement of law, but also that non-state institutions would fight crime, resolve disputes, and render justice more effectively than the state, based on their stronger incentives.

Product Details

ISBN-13: 9781598130690
Publisher: Independent Institute, The
Publication date: 03/01/2013
Sold by: Barnes & Noble
Format: NOOK Book
Pages: 416
File size: 3 MB

About the Author

Bruce L. Benson is the recipient of the Ludwig von Mises Prize and the Adam Smith Award, a senior fellow of the Independent Institute, and a contributing editor of the Independent Review. He is a professor of economics at Florida State University, has written numerous articles and reviews, and is the author of The Economic Anatomy of Drug War, Privatization in Criminal Justice, and To Serve and Protect. He lives in Tallahassee, Florida.

Read an Excerpt

The Enterprise of Law

Justice Without the State

By Bruce L. Benson

The Independent Institute

Copyright © 2011 The Independent Institute
All rights reserved.
ISBN: 978-1-59813-069-0



Anyone who would even question the "fact" that law and order are necessary functions of government is likely to be considered a ridiculous, uninformed radical by most observers. Bernard Herber, in a typical public finance textbook, for example, wrote

The ... function ... of providing domestic stability in the form of law and order and the protection of property ... could be logically opposed only by an avowed anarchist. Since ... [law and order is] not [a] controversial function of government, ... [it does] not require a lengthy analysis in the effort to construct an economic case for the existence of a public sector for resource allocation purposes.

But even though most academics do not question the logic of government domination of law and the maintenance of order, large segments of the population do. Surveys and polls indicate growing dissatisfaction with all aspects of government law enforcement in the United States, particularly with the courts and the corrections system. More importantly, citizens are turning to the private sector in ever increasing numbers for services which presumably are "not controversial functions of government." Privately produced crime detection and prevention, arbitration, and mediation are growth industries in the United States.

This study will use economic theory to compare institutions and incentives that influence public and private performance in the provision of law and its enforcement. Some critics may contend that law is not an appropriate subject for "economic analysis," because it is not produced and allocated in exchange markets. To be certain, economics has a great deal to say about market institutions, but its relevance and scope are not so narrowly limited. Economic theory requires only that scarce resources be allocated among competing uses. Clearly, the enterprise of law — the use of police services, court time, and all other inputs in the process of making law and establishing order — requires scarce resources that must be allocated. Beyond that, economic theory explains human behavior by considering how individuals react to incentives and constraints.

Using economic theory, then, it can be convincingly demonstrated that private-sector (i.e., market or voluntary) institutions are capable of establishing strong incentives that lead to effective law making and law enforcement. The resulting legal constraints facilitate interaction and support social order by inducing cooperation and reducing violent confrontation. It can also be shown that public-sector institutions create incentives that can lead to substantial inefficiencies in the provision of these same functions. In fact, our modern reliance on government to make law and establish order is not the historical norm. Public police forces were not imposed on the populace until the middle of the nineteenth century in the United States and Great Britian, for instance, and then only in the face of considerable citizen resistance. Crime victims played the prosecutors' role in England until almost the turn of the century, and they did not yield to public prosecution without a struggle. The foundation of commercial law was developed by the European merchant community and enforced through merchant courts. To this day, international trade is "governed" to a large extent by merchants, as they make, arbitrate, and enforce their own law; and in the United States, at least 75 percent of commercial disputes are settled through private arbitration or mediation with decisions based on business custom and practice (customary commercial law). Arbitration services, particularly for commercial disputes, have been increasingly used for some time, but the last few years have witnessed the development of a new industry — private for-profit courts competing with public courts for a wide spectrum of civil disputes. Furthermore, there are now over twice as many private police as public police in the United States, as citizens hire more and more watchmen, guards, and highly trained security experts. Between 1964 and 1981, employment by private firms offering protective and detective services increased by 432.9 percent, and the number of firms offering such services grew by 285.5 percent over the same period (see Table 9.3).

Individuals are also increasingly supplementing government protection with efforts of their own. More and more citizens are buying firearms for personal protection; burglar alarms are being installed and guard dogs purchased. Citizens are barring their windows, learning self-defense, carrying whistles and other noisemakers, and buying self-protection devices. There is a growing business in providing bullet-proof cars and security systems for the powerful and wealthy who fear assassination or kidnapping. There are also less costly activities, such as neighborhood or tenant watches and patrols, and escort groups. A Gallup poll found that during the early 1980s, 17 percent of those surveyed reported at least one of these voluntary crime prevention efforts in their neighborhood.

People turn to the private sector when public police and courts are presumably available because there is a growing dissatisfaction with public-sector efforts to maintain social order. Citizens' dissatisfaction arises in part because of a growing belief that the government is not adequately controlling crime. In 1982, the Figgie Report on Fear of Crime found that "most people perceive crime rates as continually increasing and look at any decline as an aberration, a temporary ebb in the inexorably rising tide of petty theft, armed robbery, murder, and international terror." The report also pointed out that crime statistics understate the true level of crime. According to the report, an estimated 60 percent of all personal larceny cases where there is no contact between the thief and his victim go unreported; and less than 50 percent of all assaults, less than 60 percent of all household burglaries, less than 30 percent of household larcenies, and only a little more than half of all robberies and rapes are reported. Thus, the Figgie Report concluded: "These striking statistics are either a measure of the lack of public confidence in the ability of the police to solve crimes or a more realistic appraisal of what is possible...." After all, in 1980 less than 20 percent of reported crimes were cleared by arrest (down from 26 percent in 1960), and in at least one California county only 12 percent of those arrested as felons in 1977 were actually convicted. The U.S. Department of Justice report on crime victimization in 1979 found that approximately 10 percent of unreported crimes were not reported because people believed that the police "do not want to be bothered."

Dissatisfaction with the public criminal law apparatus extends to the courts as well. Since 1965 more and more people have come to believe that the courts have not been harsh enough in criminal cases, rising from 48.9 percent in 1965 to 84.9 in 1978 (see Table 1.1); from 1980 to 1986, this percentage held fairly steady in the 82 to 86 percent range. A 1972 study found that 82 percent of its survey respondents agreed "somewhat" or "a great deal" that "recent Supreme Court decisions have made it more difficult to punish criminals."

The Figgie Report also found that 80 percent of the study's sample believed that the courts and prison system were ineffective in rehabilitating criminals. More than half of those surveyed (52 percent) thought that the prison sentences currently given do not discourage crime and that the "revolving door policy in the justice system makes a prison term a mere inconvenience for the experienced criminal." Plea bargaining now leads to approximately 90 percent of criminal convictions, implying to many that criminals are getting off with light sentences; beyond that, criminals serve, on average, less than half their sentences in jail (down from 61 percent in 1965). Many also believe that prisons do not fulfill their functions of deterrence and rehabilitation, but instead serve as "schools" for the study of crime. Indeed, a nationwide follow-up study of 78,143 offenders who were released from prison in 1972 found that 74 percent were rearrested.

The courts receive low marks from citizens in the area of civil law as well. A 1978 survey found that only 23 percent of those interviewed had a high degree of confidence in state and local courts, while over a third of the sample expressed little or no confidence. Moreover, 57 percent believed that "efficiency in the courts" was a serious national problem. After all, court backlogs can delay a civil trial for more than five years in some states.

Why is delay in the public courts such a problem when most criminal cases are settled by plea bargaining and most commercial disputes are settled by private arbitration? Why, for that matter, does the system rely so heavily on plea bargaining and private arbitration? Why do citizens think they must spend billions of dollars to hire private police officers and establish private security systems when the government is already spending billions on a public police force? Why are local, state, and federal authorities spending taxpayers' dollars to contract with private firms to build, staff, and maintain prisons when the public prison system already costs billions of dollars? Why do victims of crimes choose not to report a significant portion of all crimes committed? These questions and others like them can only be answered by comparing the institutions associated with public-sector law creation and enforcement with private-sector counterparts. Neither system is perfect, but the growing dissatisfaction with the public sector's performance and increasing reliance on private-sector alternatives indicates that it is time to question the presumption that law and order must be governmentally provided.

In the analysis that follows, I consider such topics as the characteristics of primitive legal systems and the evolution of common law and other legal systems. I explore modern law enforcement; the behavior of public police, prosecutors and judges; and political corruption. I also examine current trends in government "contracting" with private firms for police and prison services, and trends in private-sector provision of arbitration, mediation, and crime prevention. Issues in legal theory are discussed, such as the role of custom in law and the question of how "law" should be defined. Throughout the analysis, I liberally use others' thoughts and research findings, demonstrating that many of the relatively broad conclusions reached using an economic perspective have been reached by others in their complementary, yet relatively more narrow, approaches. But more importantly, drawing from a large and seemingly dispersed literature can lead to a more complete understanding of the potential for private-sector maintenance of social order. In this way we can achieve a more accurate comparison of the effectiveness of the public and private sector in this vital public policy area.



It is a widely held belief that state governments and law develop together and, therefore, that law and order could not exist in a society without the organized, authoritarian institutions of the state. One means of dispelling this perception is to illustrate that a nation-state is not a prerequisite for law. First, however, it is necessary to understand just what is meant by "law," and how systems of law work.


If law is simply represented by any system of rules, as some have suggested, then "morality" and law would appear to be synonymous. Lon Fuller contended that "law," when more appropriately "... viewed as a direction of purposive human effort, consists in the enterprise of subjecting human conduct to the governance of rules." Law consists of both rules of conduct and the mechanisms or processes for applying those rules. Individuals must have incentives to recognize rules of conduct or the rules become irrelevant, so institutions for enforcement are necessary. Similarly, when the implications of existing rules are unclear, dispute resolution institutions are required. As conditions change, mechanisms for development of new rules and changes in old rules must exist. So, legal systems display very similar structural characteristics. Fuller's definition of law is accepted here, in part because it allows the analysis of law to focus on the institutions involved in the production and enforcement of legal rules, and on the incentives which both lead to the development of and arise as a consequence of those institutions. That is, it lends itself to an economic analysis of the enterprise of law.

Law can be imposed from above by some coercive authority, such as a king, a legislature, or a supreme court, or law can develop "from the ground" as customs and practice evolve. Law imposed from the top — authoritarian law — typically requires the support of a powerful minority; law developed from the bottom up — customary law — requires widespread acceptance. Hayek explained that many issues of law are not

whether the parties have abused anybody's will, but whether their actions have conformed to expectations which other parties had reasonably formed because they corresponded to the practices on which the everyday conduct of the members of the group was based. The significance of customs here is that they give rise to expectations that guide people's actions, and what will be regarded as binding will therefore be those practices that everybody counts on being observed and which thereby condition the success of most activities.

Customary law is recognized, not because it is backed by the power of some strong individual or institution, but because each individual recognizes the benefits of behaving in accordance with other individuals' expectations, given that others also behave as he expects. Alternatively, if a minority coercively imposes law from above, then that law will require much more force to maintain social order than is required when law develops from the bottom through mutual recognition and acceptance.

Reciprocities are the basic source both of the recognition of duty to obey law and of law enforcement in a customary law system. That is, individuals must "exchange" recognition of certain behavioral rules for their mutual benefit. Fuller suggested three conditions that make a duty clear and acceptable to those affected:

First, the relationship of reciprocity out of which the duty arises must result from a voluntary agreement between the parties immediately affected; they themselves "create" the duty. Second, the reciprocal performances of the parties must in some sense be equal in value. ... We cannot here speak of an exact identity, for it makes no sense at all to exchange, say, a book or idea in return for exactly the same book or idea. The bond of reciprocity unites men, not simply in spite of their differences but because of their differences. ... Third, the relationships within the society must be sufficiently fluid so that the same duty you owe me today, I may owe you tomorrow — in other words, the relationship of duty must in theory and in practice be reversible.

Because the source of recognition of customary law is reciprocity, private property rights and the rights of individuals are likely to constitute the most important primary rules of conduct in such legal systems. After all, voluntary recognition of laws and participation in their enforcement is likely to arise only when substantial benefits from doing so can be internalized by each individual. Punishment is frequently the threat that induces recognition of law imposed from above, but incentives must be largely positive when customary law prevails. Individuals must expect to gain as much or more than the costs they bear from voluntary involvement in the legal system. Protection of personal property and individual rights is a very attractive benefit.

Under customary law, offenses are treated as torts (private wrongs or injuries) rather than crimes (offenses against the state or the "society"). A potential action by one person has to affect someone else before any question of legality can arise; any action that does not, such as what a person does alone or in voluntary cooperation with someone else but in a manner that clearly harms no one, is not likely to become the subject of a rule of conduct under customary law. Fuller proposed that "customary law" might best be described as a "language of interaction." Facilitating interaction can only be accomplished with recognition of clear (although not necessarily written) codes of conduct enforced through reciprocally acceptable, well established adjudication arrangements accompanied by effective legal sanctions.

James Buchanan asked, if government is dismantled "how do rights re-emerge and come to command respect? How do 'laws' emerge that carry with them general respect for their 'legitimacy'?" He contended that collective action would be necessary to devise a "social contract" or "constitution" to define rights and to establish the institutions to enforce those rights. But collective action can be achieved through individual agreements, with useful rules spreading to other members of a group. Demsetz explained that property rights will be defined when the benefits of doing so cover the costs of defining and enforcing such rights. Such benefits may become evident because a dispute arises, implying that existing rules do not adequately cover some new situation. The parties involved must expect the benefits from resolving the dispute (e.g., avoiding a violent confrontation), and of establishing a new rule, to outweigh the cost of resolving the dispute and enforcing the resulting judgment, or they would not take it to the adjudication system.

Dispute resolution can be a major source of legal change since an adjudicator will often make more precise those rules about which differences of opinion exist, and even supply new rules because no generally recognized rules cover a new situation. If the relevant group accepts the ruling it becomes part of customary law, but not because it is coercively imposed on a group by some authority backing the court. Thus, good rules that facilitate interaction tend to be selected over time, while bad decisions are ignored.

Dispute resolution is not the only source of legal evolution under customary law. Individuals may observe others behaving in a particular way in a new situation and adopt similar behavior themselves, recognizing the benefit of avoiding confrontation. Institutions for enforcement similarly evolve due to recognition of reciprocal benefits.

Consider the development of dispute resolution procedures. No state-like coercive authority exists in a customary system to force disputants into a court. Because rules of customary law are in the nature of torts, the aggrieved party must pursue prosecution. Under such circumstances, individuals have strong reciprocal incentives to form mutual support groups for legal matters. The makeup of such groups may reflect family (as it frequently did in primitive societies), religion (as in some primitive groups), geographic proximity (as in Anglo-Saxon England), functional similarity (as with commercial law), or contractual arrangements (e.g., as in medieval Ireland and in medieval Iceland). The group members are obligated to aid any other member in a valid dispute, given that the member has fulfilled his obligations in the past. Thus, ability to obtain support in a dispute depends on reciprocal loyalty.

Should a dispute arise, reciprocal support groups give individuals a position of strength. This does not necessarily mean, however, that disputes are settled by warfare between groups. Violence is a costly means of solving a dispute: if the accuser and his support group attack the accused, the accused's group is obliged to avenge the attack. Consequently, arrangements and procedures for non-violent dispute resolution should evolve very quickly in customary law systems.

The impetus for accepting adjudication in a customary legal system (as well as in an authoritarian system) is the omnipresent threat of force, but use of such force is certainly not likely to be the norm. Rather, an agreement between the parties must be negotiated. Frequently, a mutually acceptable arbitrator or mediator is chosen to consider the dispute, but this individual (or group) will have no vested authority to impose a solution on disputants. The ruling, therefore, must be acceptable to the groups to which both parties in the dispute belong. The only real power an arbitrator or mediator holds under such a system is that of persuasion.

If the accused offender is found guilty, the "punishment" tends to be economic in nature: restitution in the form of a fine or indemnity to be paid to the plaintiff. Liability, intent, the value of the damages, and the status of the offended person all may be considered in determining the indemnity. Every invasion of person or property is generally valued in terms of property.

A judgment under customary law is typically enforceable because of an effective threat of total ostracism by the community (e.g., the primitive tribe, the merchant community). Reciprocities between the groups, recognizing the high cost of refusal to accept good judgments, takes those who refuse such a judgment outside their support group and they become outcasts or "outlaws." The adjudicated solutions tend to be accepted due to fear of this severe boycott sanction.

Carl Menger proposed that the origin, formation, and ultimate process of all social institutions (including law) is essentially the same as the spontaneous order Adam Smith described for markets. Markets coordinate interactions, as does customary law. Both develop as they do because the actions they are intended to coordinate are performed more effectively under one system or process than another. The more effective institutional arrangement replaces the less effective one.

The evolutionary process is not one of deliberate design. In the case of primitive societies, for example, early kinship or neighborhood groups were effective social arrangements for internalizing reciprocal legal benefits — as well as other benefits arising out of cooperative production, defense, religious practices, and so on — relative to previously existing arrangements. Others saw some of those benefits and either joined existing groups or copied their successful characteristics and formed new groups. Neither the members of the earliest groups nor those who followed had to understand what particular aspect of the contract actually facilitated interactions that led to an improved social order. One example of a primitive legal system is revealed in Leopold Popisil's work with the Kapauku Papuans of West New Guinea.


In 1954, Popisil began conducting research among the Kapauku Papuans, a primitive linguistic group of about 45,000 people living by means of horticulture in the western part of the central highlands of West New Guinea. He discovered that their reciprocal arrangements for support and protection were based on kinship. Members of two or more patrilineages, however, typically joined together for defensive and legal purpose, even though they often belonged to different sibs. These "confederations" generally encompassed from three to nine villages, with each village consisting of about fifteen households.

The Kapauku had no formal governmental authority with coercive power. Most observers concluded that there was a lack of leadership among those people, but one Dutch administrator noted that "there is a man who seems to have some influence upon the others. He is referred to by the name tonowi which means 'the rich one.' Nevertheless, I would hesitate to call him a chief or a leader at all; primus inter pares [the first among equals] would be a more proper designation for him." Popisil suggested that to understand the role and prestige of the tonowi one must recognize two "basic values" of the Kapauku: individualism and physical freedom. For instance, a detailed system of private property rights was evident, and there was no common ownership.

A house, boat, bow and arrows, field, crops, patches of second-growth forest, or even a meal shared by a family or household is always owned by one person. Individual ownership ... is so extensive in the Kamu Valley that we find the virgin forests divided into tracts which belong to single individuals. Relatives, husbands and wives do not own anything in common. Even an eleven-year-old boy can own his field and his money and play the role of debtor and creditor as well.

The paramount role of individual rights also was evident in the position of the tonowi, typically "a healthy man in the prime of life" who had accumulated a good deal of wealth. He was, Popisil reported, "an individual who has a great amount of cowrie-shell money, extensive credit, several wives, approximately twenty pigs, a reasonably large house, and many cultivated fields." Individual wealth almost always depended on work effort and skill, so a tonowi was generally a mature, skilled individual with considerable physical and intellectual abilities. But not all tonowi achieved the respect necessary to assume leadership. "The way in which capital is acquired and how it is used make a great difference," Popisil concluded; "the natives favor rich candidates who are generous and honest. These two attributes are greatly valued by the culture."

Each individual in the society could choose to contract with any available tonowi (availability generally involved kinship). Typically, followers became debtors to a tonowi in exchange for agreeing to perform certain duties in support of the tonowi. The followers got much more than a loan, however: "The expectation of future favors and advantages is probably the most potent motivation for most of the headman's followers. ... Even individuals from neighboring confederations may yield to the wishes of a tonowi in case his help may be needed in the future." Thus, tonowi leadership was given, not taken, and reflected to a great extent an ability to "persuade the unit to support a man in a dispute or to fight for his cause." Thus, this position of leadership was achieved through reciprocal exchange of support between a tonowi and his followers, support that could be freely withdrawn by either party (e.g., upon payment of debt or demand for repayment). The informality and contractual characteristics of Kapauku leadership led many Western observers to conclude that Kapauku society lacked law, but there is clear evidence that law was recognized, and that processes for adjudication and change existed in the Kapauku's legal system.

Recognition. Recognition of law was based on kinship and contractual reciprocities motivated by the benefits of individual rights and private property. Indeed, a "mental codification of abstract rules" existed, so that legal decisions were part of a "going order." Grammatical phrases or references to specific customs, precedents, or rules were present in all adjudication decisions that Popisil observed. He concluded: "not only does a legal decision solve a specific case, but it also formulates an ideal — a solution intended to be utilized in a similar situation in the future. The ideal component binds all other members of the group who did not participate in the case under consideration. The [adjudicator] himself turns to his previous decisions for consistency. In a way, they also bind him. Lawyers speak in such a case about the binding force of the precedent."


Excerpted from The Enterprise of Law by Bruce L. Benson. Copyright © 2011 The Independent Institute. Excerpted by permission of The Independent Institute.
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Table of Contents


Preface: The Enterprise of Law after Twenty Years,
1 Introduction,
Part I From Voluntary to Authoritarian Law,
2 Customary Legal Systems with Voluntary Enforcement,
3 The Rise of Authoritarian Law,
Part II A Public Choice Approach to Authoritarian Law,
4 Law and Justice as a Political Market,
5 The Demand Side of the Political Market,
6 The Supply Side of the Political Market,
7 Corruption of Law Enforcement Officials,
Part II Reemergence of Private Alternatives,
8 Contracting Out for Law and Justice,
9 Current Trends in Privatization,
10 Benefits of Privatization,
Appendix to Chapter 10,
Part IV Rationalizing Authoritarian Law,
11 Market Failure in Law and Justice,
12 The Legal Monopoly on Coercion,
Appendix to Chapter 12,
Part V From Authoritarian to Private Law,
13 Political Barriers to Privatization,
14 Envisioning a Private System,
About the Author,
Praise for The Enterprise of Law,
About the Independent Institute,
Independent Studies in Political Economy,

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