In my article “Private Law,” I gave an overview of the legal system I believe would evolve in the absence of government. In my follow-up piece, I elaborated on this system and answered some of its critics. For the present essay, I will discuss how a private legal system would handle a few crucial functions, and contrast its performance with that of a monopolized government legal system.
I. PRODUCT SAFETY
One of the most common charges against pure laissez-faire is that a completely unregulated market would leave consumers at the mercy of ruthless businessmen. We are told that without benevolent government oversight, food would be poisonous, television sets would explode, and apartment buildings would collapse. (I point out in passing that television sets did explode in the Soviet Union, and many apartment buildings did collapse in statist Turkey after a mild earthquake.) It’s true, such critics might concede, that in the long run, shady companies would eventually go out of business. But surely someone who sells a deadly hamburger should be immediately punished for this, on top of forfeiting future customers.
As with other areas of law, I believe the market would deal with these sorts of cases through contractual pledges. When a consumer bought something, part of the package would be a guarantee such as, “If this product causes injury, as determined by a reputable arbitration agency, the customer is entitled to the standard damages.” And, just as individuals would likely need to be backed by a large insurance company before anyone would do business with them, so too would businesses need to be insured against possible customer lawsuits, if they wanted to attract customers. If an individual liked to live dangerously, he’d be perfectly free to buy a computer from a firm that did not carry insurance. But if something went wrong, it would be much more difficult for him to get his money back. It would thus be in the great interest of most people to only do business with companies that had their contracts backed by large, reputable insurance companies.
We immediately see that this system avoids the nightmare scenarios cooked up by proponents of government regulation. Let’s take the case of air travel. The Federal Aviation Administration “guarantees” that airplanes have had proper maintenance, pilots are rested, etc. So customers don’t need to worry about their planes crashing. In contrast, many people allege, under a free market customers would have to keep statistics on how many crashes each airline had, and they’d have to know all about airplane maintenance to see which companies were best.
But this is nonsense. All a flier needs to do is make sure that when he buys a plane ticket, part of what he buys is a pledge (backed by an insurance company) saying, “If you are killed in a plane crash, our airline will pay your estate $y million.” Now, since the insurance companies stand to lose millions if the planes of this airline crash, it is they who will hire trained inspectors, keep meticulous maintenance logs, etc. They would say to the airlines: “Yes, we will underwrite your contractual pledges to customers, but only if you follow our safety procedures, allow our inspectors to look at your planes, work out an adequate pilot screening process, etc., and if we catch you violating your agreement, we will fine you accordingly.” Since they are out to maximize profits, the insurance company will gladly pay for preventive efforts if this will lead to a greater savings in expected payments of claims to those killed in a crash.
This stands in sharp contrast to the present system. The FAA too sets up guidelines, but what are its incentives? If there is a plane crash, the FAA itself will get more funding, since everyone will say the crash shows how awful the “free market” in airplanes is. Bloated government agencies always mismanage their resources, so that there will be too many mid-level managers and not enough inspectors. Most important, since there is no competition, there is no benchmark against which to compare the FAA’s oversight. Some lowly mechanic might have a great idea to improve airline safety, but the bureaucratic FAA would take years to implement it.
II. PROFESSIONAL LICENSING
Closely related to the area of product safety is professional licensing. Let’s use the example of medicine. Without government regulation, many believe, patients would be at the mercy of quacks. Ignorant consumers would go to whatever brain surgeon charged the lowest price, and would be butchered on the operating table. To prevent this, the benevolent government must establish guidelines—backed up by guns—to limit those who enter the medical profession.
This of course is nonsense. Voluntary organizations would probably arise, allowing only qualified doctors into their ranks. Concerned consumers would then patronize only those doctors endorsed by reputable associations. Before undergoing risky procedures or ingesting prescribed drugs, patients would require contractual pledges for restitution in the event of injury. In this case, it is again the insurance companies who would make sure the doctors they were underwriting were in fact qualified. Since they’d stand to lose millions in malpractice suits, the insurance companies would be very careful when setting their standards.
Such a system would be far preferable to the present one. As it is, the American Medical Association is little more than a glorified union, which requires immense schooling and training to artificially restrict the number of doctors in order to drive up their salaries (and health care costs in general). Without its monopoly, the AMA would be unable to check the growth in “alternative” therapies, such as herbal, that sidestep the current cozy alliance of big pharmaceutical companies, hospitals, and the government.
One must also realize that the incentives of the Food and Drug Administration render it far too conservative: If people die because of a new drug that the FDA has approved, the FDA will be blamed. But if people die because the FDA has not approved a new drug, it won’t be held accountable; the sickness itself will be blamed. Consequently, many potentially life-saving drugs are currently being withheld from dying patients. In a purely free market, patients would be allowed to take whatever drugs they wanted.
III. GUN CONTROL
I realize that many libertarians find certain aspects of my system a bit unnerving. As Dan Mahoney has suggested, at times it seems I come close to smuggling the State in through the back door.
Rather than dance around such issues, I’ll give the best example I can think of to demonstrate the difference between the conventional libertarian approach and my own: gun control. As we’ll see, I don’t think my approach is inconsistent with the libertarian creed, but I do think it will (at least initially) make many libertarians uncomfortable.
The standard arguments over gun control go like this: Opponents say gun control will render people defenseless against criminals and leave citizens at the mercy of their government rulers; only when someone has actually used his gun against innocents can the law rightfully step in. Proponents of gun control, however, argue that this position is too dogmatic; surely some preventive measures are justified in the public interest.
As with most debates held within the context of a government legal system, I think both sides have legitimate points. Certainly we cannot trust the government to protect us once it has disarmed us. But on the other hand, I feel a bit silly arguing that people should be able to stockpile atomic weapons in their basement. (A strict interpretation of many libertarian arguments would mean just that.) Fortunately, the system of private law that I’ve described allows us to sidestep this apparent “tradeoff.”
Recall that the penalties for injury and murder would be established by contractual pledges, underwritten by insurance companies. People allow Joe Smith onto their property because they know if he hurts someone, either he will directly pay the damages or his insurance company will. The insurance company makes its money by charging appropriate premiums, tailored to the individual client. If Joe Smith has been deemed guilty in the past of violent behavior, his insurance premiums will be accordingly higher.
But there are other factors that an insurance company would take into account when setting premiums, besides past behavior. And one of these factors would undoubtedly be: What sort of weapons does this client keep around the house? After all, if the insurance company is going to agree to pay, say, $10 million to the estate of anyone Joe Smith kills, the company will be very interested to know whether Smith keeps sawed off shotguns—let alone atomic weapons—in his basement. Someone who keeps such weapons is much more likely to harm others, as far as the insurance company is concerned, and so his premiums will be that much higher. In fact, the risk of a client who kept atomic (or chemical, biological, etc.) weapons would be so great that probably no policy would be offered.
This approach is superior to the governmental one. Truly dangerous weapons would be restricted to individuals willing to pay the high premiums associated with their ownership; kids couldn’t buy bazookas at the local K-Mart. On the other hand, there wouldn’t be the slippery slope that there is now with all government gun control. We would never fear that all handguns would be banned, since the insurance companies would be out strictly to make profit, and it would be far more profitable to allow people to keep handguns and pay slightly higher premiums. (In fact, households with conventional firearms might enjoy lower premiums, if the insurance company thinks this will reduce the incidence of crime in the area enough to justify the incentive.)
As with all contracts under my system, those “regulating” guns would be completely voluntary, involving no violation of libertarian rights. The insurance company is not forcing people to give up their bazookas. All it is saying is this: If you want us to guarantee your contracts with others, you can’t own a bazooka. The insurance companies are the just owners of their money, and it is thus perfectly within their rights to make such a request. To charge higher premiums to those who wish to own multiple weapons is no more unjust than the present practice of offering discounts to drivers for taking a driving safety class, or to homeowners for installing an alarm system. If a particular insurance company is staffed by people who fear guns, then gun owners will shop around for a different insurance company.
This is far preferable to the government system, which has no accountability. If politicians ban guns and cause thousands of people to be victimized by crime, nothing happens to them. But if an insurance company makes unreasonable demands of its clients, they will switch to a different company and it will quickly go out of business.
IV. DANGEROUS CRIMINALS
The supposed tradeoff between individual liberty and public safety is also exemplified in the debates over legal “technicalities.” Conservatives like to complain about cases where a known murderer is set free by a pansy liberal judge, all because the cops coerced a confession or forgot to read the suspect his rights. Liberals (such as Alan Dershowitz) respond that although such cases are unfortunate, they are necessary to keep the police in line.
As with gun control, I am sympathetic to both sides in this debate, and again I think my system can avoid both sorts of absurdities. To see this, let’s suppose that through some quirk, a clearly “guilty” murderer has technically not violated any contractual provisions. Or, if you prefer, suppose an arbiter—who would only be hearing murder cases because of past excellence in his rulings—for some reason makes an outrageous ruling, and finds someone innocent of murder despite overwhelming evidence to the contrary. (Again, I want to stress that cases like this are going to happen under any system. I am not conceding anything by admitting such possibilities; rather, I am trying to show the strength of my approach by explaining its response to such cases.)
Because he was technically acquitted, the murderer would not have to pay damages to the estate of his victim. As I mentioned in my earlier article, the rules governing this episode would be quickly revised to prevent its recurrence. But there’s more. Under a government system, someone freed on a technicality gets off scot-free. But under the private law system I’ve described, the killer’s insurance company could still increase the premiums they charged. It wouldn’t matter whether their client had been actually convicted of a crime; their only concern would be the likelihood that he would be convicted in the future, because then they’d have to pay the damages.
Again, this process does not involve a violation of anyone’s rights. It no more discriminates against clients than the present practice of charging young males higher car insurance premiums, even if their driving record is snow white. We don’t need to fear a roundup of all mentally handicapped people, or all young black males, because such practices would not be profitable. If a certain individual were truly being charged a premium higher than he “deserved,” he could shop around for a different insurance company.
This analysis also resolves the issue of parole. Although most crimes would involve financial restitution, rather than imprisonment, there would still be individuals who were too dangerous to be allowed loose. The insurance companies would determine this threshold. As long as a company were willing to pay for any damages a criminal might commit in the future, people would offer him work, let him rent a room, etc. Rehabilitation would thus be in the great financial interest of the companies, in order to increase their pool of paying customers.
On the other hand, truly dangerous individuals would not be “paroled.” Right now, the government has psychologists and other “experts” decide when sex offenders and murderers should be let back on the streets. Since they have no accountability, these ivory tower intellectuals often test out their theories on the hapless victims of recidivist criminals. Just watch America’s Most Wanted or read books explaining how the FBI catches serial killers, and you’ll be shocked by how many current killers and rapists commit their crimes while on parole.
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I hope the above examples have illustrated the versatility of a private law system. The main theme running throughout is that competition and accountability would force true experts to handle the important decisions that must be made in a legal system. While considering a private law system, many problems come to mind. However, we must always contrast these to the outrageous abuses suffered everyday under the present governmental system.
September 22, 2001
