Questions For Libertarians – How Would Civil Law Work?

A couple of questions on this from @simonr916

In a minarchist state:

How would such a government come into being and who would
run and administer this organisation? How would decisions on spending money be made? Who would draft the laws, choose the judges, appoint the police officers and so on?

Alternatively In an Anarcho-Capitalist Society:

In such a country, each man would be left to defend his own property and rights. You’d live in constant fear of a larger, or better armed, group taking your property by force. If you choose to have no government, how does the honest man protect his property from those who wish to take it?

I am going to deal with this in a slightly different way because the first set of questions are also important in an Anarcho-Capitalistic society. The questions really boil down to how would a system of law operate in a libertarian society and how would laws be enforced.

There are two distinct types of law, civil law relating to the enforcement of agreements such as contracts and criminal law relating to violations of property rights (including the physical person). I will address civil law in this post and criminal law in the next.

Civil Law in a Libertarian Society

In a libertarian society people would be free to contract under any set of rules they agree on. To a large extent such a system of multiple legal systems already operates. It is quite common in commercial contracts between businesses operating in different countries (which have different legal systems) to include a contract clause that says the contract is to be construed in accordance with the laws of for example, England & Wales or Switzerland. The only difference in a libertarian society is that rather than being restricted to the laws passed by geographic states, they would be free to select the laws drafted by private businesses, such as The National Legal Services Company or the Association of Wine Merchants.

One of the benefits is that the laws could be very specific to the trade in question and being drafted by industry experts on both sides, would be likely to function far more effectively in line with the parties needs and expectations than a generic set of laws applying to the geographic area controlled by the state.

In the event of a dispute the conflict could be adjudicated on by any one of a number of private courts. Again this is already taking place. Many contracts already specify the use of  private arbitration companies, rather than courts. Usually because they are quicker and less expensive.

So to answer some of the questions raised, the laws are drafted by private companies, the courts are run as private companies and the judges/arbitrators are appointed by private companies. Market forces work to continually improve the quality of all parts. Since both sides have to agree to any law, or any court they must continually strive to be as balanced and as fair as possible.

In the state system if a particular judge has a prejudice against dairy farmers they have no choice but to suffer the prejudice. The judge has a state ordained monopoly on the administration of justice in his court. In a free market system, such a judge would simply not get any of the dairy farmers business. A totally partisan judge would go bankrupt!

Since the parties involved bear the costs they must continually strive to be efficient or a lower cost competitor may take their business. Courts that start at 10:00am and finish at 3:00pm would be replaced by courts that optimize their operations to reduce the costs to their clients.

How could the judgements of such private courts be enforced? In the current system if one party ignores the ruling of binding arbitration the state courts and the officers of the state will coerce them to comply. If there is no state, to threaten violence how will judgements be  enforced?

The answer is simple. Those who do not obey a ruling of a private arbitration court are simply blacklisted by the entire private arbitration system and publicly named and shamed.  Who would risk making a contract with another party who cannot have any dispute resolved by a third paty impartial judge and who is known not to honor rulings made by arbitration? It would simply be commercial suicide for anyone to flout such a ruling as they would be ostracizing themselves from the dispute resolution procedure required to trade. (In the event of fraud or other criminal activity additional options are open to the victim as for any crime, which are covered in the following post.)

Such a system is not just theoretically possible but historically mercantile law was developed and enforced by private merchant courts as was admirality law, before the state claimed sole jurisdiction. Perhaps a more recent example of a self regulating commercial community is Ebay. Anyone who cheats customers receives negative feedback which makes it, at best much more difficult, at worst impossible to continue to trade with other members of the community.

Most transactions covered by the civil law would be business to business transactions, but this branch of the law also covers the case of consumers buying from businesses.

What about the “poor”?

How can they pay for private arbitration, if a large corporation breaks the terms of its agreement with them to provide, for example a new satellite dish?

There are several options:

Insurance would be available in the free market to cover the costs. Annual legal insurance for £50,000 can be purchased today for £20 a year (5.5p a day) and the price would be much lower under a more cost efficient private arbitration system. This should be within the reach of all but the very poorest. Without a state funded legal system awareness of the importance of such insurance would be high.

Reputable sellers would include the offer of funded arbitration proceedings in the terms and conditions of their offering to demonstrate their confidence in the high quality of their products or services. The poor could restrict their purchases to only vendors offering this protection.

No win, no fee arrangements where a proportion of any damages are paid out to the person taking the case to arbitration would be very common in a libertarian legal system.

Charitable or pro-bono legal representation would also be available to many, as it is today.

For commercial/civil laws there is clearly no need for the state to be involved.

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  • voodoo_criminology

    What about the “poor”? How can they pay for private arbitration, if a large corporation breaks the terms of its agreement with them to provide, for example a new satellite dish?
    Nice example.
    The problem you’re missing is a very simple one – what’s to stop corruption and bribery of the various private arbitration companies? Wouldn’t it even be legitimate for them to form a binding contract with one of the parties before them so as to find in their favour? 

    • Murray Rothbard

      No, arbitration companies would have to be agreed by both parties. Arbitration companies that favoured businesses would not be agreed to by consumers and vice-versa. The market operated to promote impartiality and fairness.

    • voodoo_criminology

      But your premise is that a “choice of law” clause would be included in contracts, locking in a particular forum?

      Therefore, a proferens could, particularly in consumer contracts, send all of their disputes to a particularly “friendly” arbitrator.

      Plus, if protections such as the rules surrounding inequality of bargaining power and implied terms under consumer protection legislation were removed – as they presumably would be, as your system seems to presuppose that everyone contracts on an equal footing – consumers would have little choice but to accept.

      Also, I know that antitrust is supposedly bad, and the Magic of the Markets will always operate to break up monopolies, which always rely upon Big Bad Gubbmint for their establishment … but what’s to stop a particular industry from engaging in a conspiracy against the public, having a particular tribunal that deals with their claims? 

      It’s an interesting topic, but, with respect, I think that you’re a long way from making out a workable system of non-state law. Far too many suppositions here, and far too little hard evidence as to why things would work in the way you suppose they will.

  • voodoo_criminology

    Premature posting there … first point is that arbitration in its current form only works because there’s an appeal to a higher, impartial tribunal with real powers to enforce its orders.

    Secondly, you haven’t addressed at all the fact that most of the modern corpus of the law of contract deals with situations of unconscionable behaviour, inequality of bargaining power and suchlike, operating mechanisms such as implied terms and equitable remedies to counter these.

    I’m guessing that (a) these would be regarded as illegitimate in utopian capitalism and (b) the fact that these mechanisms have been deemed necessary in the development of the civil law, “not [through] logic, but experience” is of no consequence?

  • awilliams66

    Problem is it may well be financially worth it to be blacklisted if you make enough profit by breaking your word, just as is possible on ebay to sell goods you don’t have and then close the account, and then come back under a different buisness name, just like setting up a new, unblemished, account on ebay.

    • Murray Rothbard

      Perhaps, but if the activity falls into the scope of crime. i.e. it is a fraud. Then the criminal law would come into play. Blacklisting works to keep genuine businesses in check, criminals are dealt with seperately