Tuesday, July 09, 2013

Does Legal Polycentrism Have a Circularity Problem?

Recently, Michael Wiebe wrote a paper criticizing legal polycentrism, the view that multiple competing protection agencies would offer results superior to that of a government monopoly.  In the abstract, Wiebe states:
To show that competition between protection agencies would have beneficial  consequences, polycentrists often cite results from price theory about market competition.  But there is a circularity problem here: markets presuppose a legal framework; hence before polycentrists can employ price theoretic arguments about market competition, they must first show that the legal requirements of markets are satisfied, that is, that property rights and contracts are enforced.
The implication is that property rights and contracts are not respected unless there is a legal entity -- one assumes, the government -- to enforce them.  It also seems to imply that prices cannot be set without this legal entity, meaning that money cannot exist without it.  This latter implication contradicts Menger's theory of the origin of money.  Of course, there are people who dispute Menger's view, but one suspects that Wiebe is not one of them.  Just as money comes into being prior to legal frameworks, so does respect for property rights and contracts.

One can imagine the first traders, crossing mountains with desirable goods from their home villages to be traded for items to be returned to and traded in those same villages.  These traders must have been confident of their ability to protect themselves and their property, either personally or with the help of more skilled defenders hired for the purpose.  They also must have had some idea of acceptable behavior, each one pursuing his own idea of legality.  There was no one that assured them that their property rights were going to be respected or their contracts enforced unless it was through their own resources.  Participants in black markets face the same challenges, each having his own idea of appropriate behavior.  These are examples of individual-based legality -- maximal legal polycentrism.

Interestingly, it seems to be more the lack of property rights and contract enforcement that brings protection agencies to the fore.  For instance, Eugen Weber's "The Western Tradition" contains the assertion that the Catholic Church began to supplant Roman officials as judges in property cases, because the latter were so corrupt.  Realizing that the police cannot protect them or their property, many neighborhoods have organized supplemental Neighborhood Watch programs.  Private arbitration is frequently part of contracts in order to avoid the risks of courtrooms where juries are generally ignorant of contract law or dismissive of property rights.  And as to the enforcement of the contracts between protection agencies and their clients, there is always the risk of violent overthrow by customers if withholding payment or changing suppliers is not an option.

The idea that informal institutions do not scale up is belied by eBay's feedback system, which rewards and punishes both buyers and sellers on an international scale.  Admittedly, there are problems with identifying those who, after defrauding buyers or sellers, close their accounts and then open new ones under different names.  eBay, of course, relies on governments to police these issues as they hold the monopoly of enforcement.  The credit reporting companies are also a large-scale reputation monitoring system that has clearly grown to supply a history of behavior to supplement the limited ability of one person to evaluate another in a single interaction (Robert Axelrod's The Evolution of Cooperation documents the increased advantage of cooperation in the prisoner's dilemma game when future interactions are expected, which credit reporting companies support by maintaining a history of interactions that is supplied to future,  currently anonymous, users.).  Even if the ability to scale up informal institutions was limited in the past, who can doubt that there are entrepreneurs ready to step in with modern technology to accomplish the task?

The fact is that polycentrism already exists and has existed on many levels.  We have the example in ancient times of the Roman state operating side-by-side with the Catholic church.  Gangs have their own rules operating within a hierarchy of jurisdictions, setting their own prices for illicit goods while existing outside the legal framework.  Inmates in prison establish illicit "hustles" in order to live better without any legal framework to protect them.  Money and trade evolved in POW camps where rules evolved subsequently to remedy "problems."  Lastly, on the nation-state level we see governments with different laws who, while not controlling common territory, do resolve problems of fugitives and differences in law, generally without violence.

Near the end of the essay, Wiebe advises the abandoning of the idea of privatization and then refers to the problem of organizing violence in society.  We may ask a question similar to Hayek's: The question is not of planning for protection but who shall plan?  Who shall organize the violence?  The central planner or the consumer by purchasing or refusing to purchase?  As the state disintegrates and expresses less and less interest in the protection of property rights and contract enforcement, individuals will have no choice but to plan for themselves.  At that point the situation may be saved by existing companies expanding their protective services or new companies with fresh approaches and technology.  At that point, whether there is an evolution into a new freer society or a reversion to another statist nightmare depends on the resources available to those who are committed to avoiding the latter.

In Wiebe's defense, it is clear that a society that has no respect for property rights or contract will not directly evolve a peaceful and private marketplace for security.  No such market system would spring into existence from a state of nature.  It is for this reason that no classical liberal or libertarian feels the need to respond to assertions that Somalia is a libertarian paradise.  An evolution in our knowledge -- the comprehension of the value of property and contract -- is required.

Also, there is no proof possible that such a market system would be stable.  It is possible that if humanity evolved a market system for protection it would devolve into despotic chaos, but that is no worse than the current situation (Robert LeFevre said it best [paraphrasing] -- "Don't worry, if you get rid of government and it isn't working, be sure that there will plenty of people ready to start one up again!").  If, however, as von Mises frequently suggested, the great majority of people value peace and prosperity, we might expect an evolutionary process in which the prey have more resources for protection than the predators have for looting.  If this situation comes to pass, stability can appear.

Finally, Wiebe states that his contention that there is a circularity problem does not constitute an impossibility proof.  He does seem to believe that there are statements about markets that must be proved in order to take conjectures about them seriously.  This justificationist approach does an injustice to market processes that are evolutionary and require no argument.  After all, if legal polycentrism comes into existence in a free society, it will not be because it has been imposed, but because it has arisen through those processes.  Libertarians who argue market outcomes through logic are displaying a lack of imagination and failing to realize that having a hammer does not turn every problem into a nail.Enhanced by Zemanta