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Transcript for Government Explained
Transcript for Government Explained
Full transcript for the video Government Explained.
Thursday, 19 April 2012
Thursday, 19 April 2012
H: Hey, an alien!
A: Yes, I have travelled across space to check on the progress of your species.
H: Cool. Shall I take you to our leader?
A: Your what?
H: Our leader - the guy in charge.
A: The guy in charge of what?
H: Well, in charge of everything.
A: You have one guy in charge of everything?
H: No, no, he’s in charge of government.
A: What is government?
H: Well, government makes the rules for us. It tells us what we can do and
what we can’t do.
A: So government is really smart? They come up with wise rules for you to follow?
H: Well mostly, but some of its rules are really stupid.
A: Do you disregard those rules?
H: No, we have to follow the rules, even if they are stupid, or we disagree with them. Government punishes anyone who disobeys the rules.
A: So you are slaves to government?
H: No, no, no, it’s not like that at all. Government works for us, the people. It serves us. We’re the boss.
A: It tells you what to do, and it punishes you with violence if you disobey it, and yet you’re its boss?
H: Yeah.
A: But there are some things government does that you don’t like?
H: Well, yeah, not everything government does is popular. Like spending on wars, for example.
A: What is a war?
H: It’s when government basically spends the peoples’ money on weapons and soldiers, and then sends them over to the other side of the world to kill a bunch of people over there and destroy their country. I don’t like it that government does this.
A: Well I can see why you might not like that. Have you humans reached the stage where you generally consider stealing, enslaving and killing each other to be bad things?
H: Oh yeah, we know that. Don’t steal. Don’t attack. Don’t assault.
A: But you give money to government and they use it to kill people.
H: Well yeah, but government does good things with tax money as well.
A: Why don’t you stop paying for the things you don’t like and only pay for the good things it does?
H: No, we can’t do that. You can’t just decide to stop paying taxes, because the rules say that everyone has to pay taxes.
A: But the rules come from government though, don’t they?
H: Yeah.
A: So government made a rule which says that everyone has to pay them money? So everybody pays taxes because if they didn’t, government would punish them using violence?
H: Well yes, but most people don’t mind paying taxes; most people feel obligated to pay taxes and obey government laws, because it’s for the good of society. Society needs government, and that means we all have to pay taxes.
A: So just to make sure I’ve got this straight. Government makes the rules and you feel obligated to follow the rules, even the ones you don’t like, and it tells you what to do, and threatens to punish you if you don’t do what it says. And it uses some of the money that it has taken from you using threats of violence to pay for things you don’t like and actually think are immoral, like mass murder.
H: Yeah, but we can ask it to please tell us to do smart things, and please don’t take our money and use it to kill people. We’re allowed to ask them to tell us to do what we want them to tell us to do.
A: Are you guys just scared of this thing? Is government some huge monster that can just squish you at any moment if you disobey?
H: No, government isn’t a monster.
A: Well what is it then? Could you draw me a picture of it?
H: Government isn’t really the sort of thing you can draw a picture of.
A: Maybe you could take me to it. Where is government?
H: You mean the building?
A: Government is a building?
H: No, but the politicians who make up the government have buildings they work from.
A: So government is a group of these politicians?
H: Yeah.
A: OK, so what species are these politicians?
H: Well they’re… human.
A: Like you?!
H: Yeah.
A: So politicians are humans, and they’re government. You’re a human, but you’re not government?
H: No.
A: So it’s the politicians, they are the ones that boss the rest of you around, and make you do things you don’t want to do and take your money using threats of violence. But even though you’re all humans – you’re not allowed to boss them around and take their money?
H: No, they’d put us in a cage if we did that. But look, it’s not like the politicians can just do whatever they want. Like, a politician can’t just come up to me on the street and make me give him money. They can’t do that. Politicians can only do things like that in their job, when they’re working for government.
A: Oh, so politicians aren’t government. They’re just work for government.
H: Yeah.
A: OK, so government isn’t a monster, and it isn’t building, and its not politicians, it’s something else. And it employs politicians who are just regular humans, who get to order everyone else around and take their money. How does a regular human become a politician?
H: Well that’s the great thing about our government. It’s a democracy, and that means that the people actually have the power, because we get to decide who among us get to be the politicians, we get to vote. And if a politician starts doing things we don’t like, we can just replace him with someone else in the next election.
A: So the people that get chosen to be politicians only get to boss people around and take their money for a short time, and then they go back to being regular humans?
H: Exactly.
A: That sounds like a powerful position to be in. But if you get to choose who does that, I assume that politicians are always the wisest, most honest, caring and respected people among you…
H: Well, no, not really. I wouldn’t say politicians are known for being honest, or wise, or caring, and they’re certainly not the most respected people among us. Come to think of it, most politicians are lying, power-hungry crooks.
A: The ones you chose?
H: Yeah, they’re always doing things we don’t like. They use taxpayers’ money to enrich themselves and their friends, and they never keep their promises to voters. They’ve been caught stealing and lying and taking bribes, and they mostly do what the big corporations want. Yeah, they’re always doing stuff like that. They’re completely corrupt. They’re a bunch of lying crooks.
A: But you said that most humans know that stealing and beating each other up and killing are wrong. And you said that you have the power because you can change who’s in charge. So why don’t you just replace the lying, thieving, murderous crooked politicians with some regular people?
H: Well we don’t try to elect lying crooks. It just always turns out that way. But we have to have a government, because some humans are nasty, and might kill, or enslave or steal. Civilization just couldn’t survive without government.
A: Let me get this straight. Because you’re worried about the small number of nasty people that are willing to kill, enslave and steal, you think it’s necessary for your survival to have a system where some humans among you, for a short while, get to call themselves the government, and they get to order everyone else around like slaves and, if they want, commit mass murder, using money they stole, using threats of violence. Politicians get to kill, enslave and steal, because if they didn’t, someone else might? And you try to elect good honest people to be politicians but what happens every time is that the people you elect turn out to be corrupt, evil, lying crooks. That’s your system?
H: Yeah, that’s pretty much government.
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Transcript for Government Explained 2: The Special Piece of Paper
Transcript for Government Explained 2: The Special Piece of Paper
Sunday, 14 October 2012
Sunday, 14 October 2012
Alien: So tell me more about your ‘leaders’. Who is the current leader of your species and where are they leading you?
Human: We don’t have just one leader for the whole world. The world is divided into countries, and each country has a leader of its own, and a government of its own.
Alien: You don’t have one government that rules the whole planet?
Human: No, this planet is really big and there are billions of people on it. The world is divided up, because people in different places want different kinds of leaders and governments.
Alien: How many countries are there?
Human: A couple of hundred, I think.
Alien: So there are millions of people per country?
Human: Yes, or hundreds of millions, in some of them.
Alien: And all the people in a country live under one single government?
Human: There can be layers of government, but there’s only one government in each country. That is how it works.
Alien: But you can have multiple governments on the same planet?
Human: Yes and its better that way. If you had single government for the whole planet and it turned tyrannical, there’d be nowhere to escape to and no one to oppose it. And I wouldn’t want to be ruled by a bunch of people living thousands of miles away on the other side of the planet. It’s better having government more local, because then it’s more accountable.
Alien: How far is it from here to where the rulers of this country live?
Human: The capital of this country is hundreds of miles from here.
Alien: So you don’t want to be ruled by a bunch of people living thousands of miles away, but you don’t mind being ruled by a bunch of people living hundreds of miles away?
Human: That’s just how it is, I guess.
Alien: Why don’t you and your neighbours set up your own country here, so you can keep a close eye on what the individuals acting as your government are doing?
Human: I don’t think our government would allow us to do that.
Alien: So you have these countries, some big and some small, and the individuals living in each country separately choose which people are going to be their politicians and as act as government of that country?
Human: Yes, although not everyone is lucky enough to live in a country where we get to choose our leaders. A lot of countries have kings or dictators or warlords running their government. People in un-democratic countries don’t get to choose their leaders.
Alien: So you consider yourself lucky because you live under a democratic government, where you, along with millions of other people, get to vote, and whoever gets the highest number of votes becomes leader of the government, the gang that tells you what to do and robs you.
Human: Yes. But there’s more to it than that. Democracy isn’t the only thing that’s great about the government of this country. In fact, democracy itself is not an ideal system at all – everyone knows that. With a pure democracy, the majority rules, because the politicians do whatever the majority of people want them to do, and this can be a problem for minorities. We know this. The real reason why we’re lucky in this country is that our government is not a pure democracy, but a republic. With a republic, minority rights are protected against the tyranny of the majority.
Alien: How?
Human: Our rights are listed in our Constitution, the document that established our government. It lays out how government is supposed to work. It says what government is allowed to do, and what it isn’t allowed to do.
Alien: What does it say government is allowed to do?
Human: Government is allowed to collect taxes for things like national defense...
Alien: Hold on - the Constitution says that government is allowed to collect taxes? So it says that the individuals who are acting as government are allowed to rob everyone else using threats of violence?
Human: Yes, but only to do good things.
Alien: Where did the Constitution come from?
Human: It was written by the Founders of this country, the people who first set up the government.
Alien: The first politicians of the country?
Human: Yes.
Alien: So a bunch of regular people just got together and wrote on a piece of paper that they’re allowed to rob everyone else, as long as they call themselves “government” and call their robbery “taxation”. Then because they have this special piece of paper, everyone just sits back and lets these guys rob them?
Human: You’re missing the point. The Founders wrote the Constitution to restrain government. They made sure there was a separation of powers, so there were checks and balances in the system. They did this to strictly limit the power, size and scope of government. They made a list of things the government can do and must do, and everything else the government can’t do. They even wrote about specific things that the government can’t do, like violating the inalienable rights of the people to life, liberty and the pursuit of happiness.
Alien: OK. But I don’t see why the piece of paper is so important. I mean, hypothetically, what if the majority of the people want government to do something that the Constitution says government shouldn’t do? Couldn’t the people vote in politicians who promise to do it for them, regardless of what the Constitution says? How does having your rights listed on an old document help protect your rights today?
Human: Well if the politicians who get voted in want to pass unconstitutional legislation, then the third branch of government, the judicial, will step in and not let the legislation pass. The Founders recognised the problem of democracy, so they gave us a Supreme Court, and their role is check whether legislation is constitutional or not.
Alien: But the Supreme Court is itself part of the government?
Human: Yes. Politicians get voted into positions in the Executive and Legislative branches, but the Judicial branch is made up of judges. So if a majority supports the government violating the rights of a minority, the judges of the Supreme Court simply won’t let it happen.
Alien: Are these Supreme Court judges just regular humans?
Human: Yes.
Alien: So how does a regular human become a Supreme Court judge?
Human: They are appointed.
Alien: By who?
Human: The politicians.
Alien: But then what is to stop the democratically-elected politicians just appointing judges who will allow their popular but unconstitutional legislation to pass?
Human: Well, they just aren’t allowed to do that.
Alien: By who?
Human: By the constitution.
Alien: The piece of paper?
Human: Yes. I admit it’s not a perfect system. I suppose what you’re saying could happen.
Alien: Does the government of this country, which you consider yourself lucky to live under, ever do things its own Constitution explicitly forbids?
Human: Yeah, a lot of things actually. The government is a lot bigger now than it was when the Constitution was written. The politicians pay lip service to the Constitution, but they trample over our rights anyway.
Alien: What about the Supreme Court?!
Human: I guess that system hasn’t worked very well lately. Government does pass unconstitutional laws all the time. The separation of powers worked for a while though, it’s not a bad system!
Alien: Powers were separate? I thought you said that the powers were all in branches of the same government?
Human: Well yes. The branches of government are totally independent and separate from each other, except that they are all part of the same organisation and all funded by taxation. Alien: So when you said the system had checks and balances in it, you meant that the government would check itself, and balance itself?
Human: That was the idea.
Alien: So, let me get this straight, a long time ago a small bunch of regular humans had a meeting and created a document called a Constitution that said that they can rob everyone else – millions of people – using threats of violence to make everyone obey their rules and commands. But so that the masses of the people would let them get away with this robbery and slavery, that small bunch also promised in the same document that there were some things the government would never do, and they described a way to structure government so as to restrain it. But, over time, the promises have proven to be worthless, the restraints have proven to be useless, and government has grown significantly in size, power and scope, violating more and more of the rights of the people. It sounds to me that if the Constitution was written to constrain government, then it has been a complete failure.
Human: Well, the real problem is that people just don’t believe in the Constitution any more. The Constitution only works when people know what it says and why it’s important. If people just knew that, then they wouldn’t vote for politicians who violate it. An informed populace: that’s the only way to really restrain government.
Alien: Wait, you said you feel lucky because this country is a republic not a democracy, and a republic has these supposed “checks and balances” that prevent government from violating people’s rights, even when a majority wants to violate the rights of others. But now you’re telling me a republic can only work if people refrain from electing politicians who will violate the rights of others in the first place. That’s the same as a democracy. We’re back to where we started.
Human: I see your point.
Alien: Is there anywhere on the planet where government is, despite the imaginative labels, anything other than a gang of thieves and bullies?
Human: But there’d be chaos without government!
Alien: I’m sure that’s what they tell you…
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Transcript for Law Without Government (Full)
Transcript for Law Without Government (Full)
What is government?
Government is defined as a territorial monopolist in the field of producing law. That is, it is the sole provider of law, the ultimate decision-maker, arbitrator and wielder of force within a territory. As a monopoly, it maintains its position by using aggression (the use or threat of violence) to prevent competing providers of law from emerging.
Government is only the organization that uses the “political means”. That is, the widely-accepted use of aggression to attain wealth: for example the monopolist declares its own acts of theft to be “legal”, calling it “taxation” and enforcing compliance. Everyone else must attain wealth using the “economic means”: producing something of value to others and then engaging in voluntary acts of trade.
Government is a territorial monopolist of law. But what is law?
Interpersonal conflicts are possible due to material scarcity of resources and goods, and diversity of interests between individuals. The potential for conflicts makes property rules and ownership rights necessary for social cooperation.
For example, apples are scarce, and this means that if two people both want it eat a particular apple, they cannot both be satisfied. For conflict avoidance, we need property rules to establish who has the ownership right over the apple: that is, who has the right to decide how the apple is used.
Laws are property rules that emerge from the resolution of conflicts. The production of law, the resolving of conflicts, is a service provided by an arbitrator or judge.
Imagine two individuals, stranded on a desert island: Adam and Ben. Adam picks a supply of apples, but then Ben comes along and takes an apple without Adam’s consent. We have a conflict.
Adam: “That’s my apple, because I picked it!”
Ben: “It is my apple, because it was on my tree!”
With no one else on the island, Adam and Ben have no one they can turn to for help resolving this conflict. They may succeed in negotiating a peaceful settlement between each other, or they may resort to physical violence.
But now suppose a third individual is on the island: Charlie. Now there is another possible way for Adam and Ben to resolve their apple conflict peacefully: ask Charlie for his opinion and agree to whatever resolution he suggests.
Ben: “We’re having a dispute over an apple. Both of us claim it as our own. Will you arbitrate for us?”
This is third-party dispute resolution. Adam and Ben both make their cases to Charlie. Charlie must decide who he believes has the stronger claim to the disputed apple, and then pronounce a judgment on the case.
Charlie: “I do not think Ben owned the tree, so I award ownership of the apple to Adam.”
Charlie has just produced a law. He has made a judgment about who the rightful owner of a disputed property is. He has awarded legal ownership of a property to one of the disputants. But Adam feels it would be unjust if Ben only has to return the apple he stole. Adam wants Ben to be punished, and wants compensation for having his time wasted. He insists that Ben pay him 5 additional apples, and then he will consider the matter settled.
Unable to solve this dispute between themselves, they ask Charlie for his opinion. Charlie recognizes the need to compensate Adam for his lost time and to punish Ben. His opinion is that a payment of 2 additional apples from Ben to Adam would be a just resolution to this conflict.
Since the purpose of Adam and Ben turning to Charlie was to help them resolve the dispute peacefully, both men will agree to his decision. If one of them does not, then they are back to having to resolve the conflict between themselves, either peacefully or otherwise. By arbitrating on a conflict and helping to resolve it peacefully, Charlie has produced a law.
Now suppose some time later on the island, another conflict occurs: this time between Adam and Charlie. If they cannot resolve the dispute by themselves, they could ask Ben to arbitrate for them.
Ben: “I’ll arbitrate for you!”
When Ben provides them with his opinion on the conflict and suggests a resolution, he too will have produced a law. And, if Ben and Charlie ever get into a dispute, they could ask Adam to produce a law for them.
There are multiple producers of law in this society. No single producer of law is in a privileged position. There is no ruler and no one is ruled. Everyone is of equal status with respect to the laws.
What would a monopoly of the production of law look like on our desert island?
Ben: “I’ll arbitrate for you!”
Charlie: “No. You are not allowed to arbitrate. I am the only one who can produce law on this island. My law is THE law!”
The injustice of this arrangement would be immediately apparent to both Adam and Ben.
Adam: “But… that would mean you even get to be the judge in disputes you are involved in!”
Ben: “And you could do whatever you want, like steal from us, and order us around, and call it “legal”!”
Charlie: “That’s right. I am the State.”
Charlie could only establish himself as ruler, and maintain that position, if he could somehow convince Adam and Ben that a ruler is necessary, and that with no ruler – anarchy – there would be chaos and disorder. If Charlie is able to maintain a monopoly of arbitration and ultimate decision-making, he will have put himself “above” the law. And Adam and Ben can no longer be considered free men.
Now suppose there are a few more individuals in this island society, and two of them have a dispute that they cannot resolve peacefully among themselves. The disputants have a choice of arbitrators that might help them resolve the conflict. There is competition in the production of law. Who will they choose?
The ideal arbitrator will be someone who is impartial, and who has a good reputation for being fair, honest and wise. As the population grows and the division of labor intensifies, some individuals who possess these qualities may find that they can make a living purely by providing arbitration services to disputants. They will be professional judges and law makers and may create firms selling laws. Their consumers will be disputants who need help resolving a conflict. Their income will depend on their reputation for making wise and fair decisions. If any one of them tries to become a monopolist, for example by insisting on being judge in a case involving himself or a member of family, he will quickly lose his reputation and his livelihood.
The principles of having competition in the field of law do not change as society becomes larger and more complex.
In my next video, Law without Government Part 2, I apply the principles outlined here to a large and complex society, explaining how law could be provided by competing firms.
Part 2: Conflict Resolution in a Free Society
Where food production is monopolized by the government, it can be hard for the people to imagine how it could ever be any other way. They fear they may starve without government to plan and direct food production. They cannot imagine how a free market in food production could possibly work, let alone how much better off they would be with that system. They are too accustomed to having food provided for them by the government.
We are accustomed to a society where the arbitration and law industry – the courts system – is monopolised by the government. We fear chaos and disorder without government to plan and direct law. We find it hard to imagine how a free market in law could possibly work. In this video I will broadly describe how law and security could be provided by competing voluntary institutions.
This is Alice. Alice lives in a free society, where security and law are provided not by a government, but by competing firms. Like most people, Alice demands to feel secure in her person and property. She does not want anyone to aggress against her. Alice also demands that, if someone does commit aggression against her, she will be able to bring the aggressor to justice, and receive compensation.
A number of competing firms exist to satisfy these consumer demands. The firm Alice subscribes to, Dawn Defense, has a good reputation for preventing crime, and for obtaining justice when crimes do take place.
Alice pays her security bill monthly, the same way she pays for her electricity and telephone services. She is on a standard package, which suits her budget and her lifestyle choices. She has chosen an insurance option, so that if someone steals from her, she is guaranteed quick compensation.
One evening while walking home, Alice becomes a victim of aggression, when she is mugged at gunpoint. At the earliest opportunity, Alice calls the emergency service number and is put through to Dawn Defense emergency response center. They quickly dispatch agents to her location.
Unfortunately, by the time their agents arrive on the scene, the mugger is long gone. The agents examine the crime scene, and gather witness statements and any evidence that might help them identify and locate the mugger.
As specified in their contract, Dawn Defense pays Alice compensation for her losses: enough to cover the possessions taken from her, and a good deal more for her time, trouble and distress. Alice’s part in this story is now over. Dawn Defense, however, will want to bring the mugger to justice. They will want to recover their costs, and they have promised their customers that muggers will not get off lightly.
After doing some detective work, Dawn Defense identifies, with reasonable confidence, Bob as the aggressor. They locate him and issue him with a written demand: that he pays them $10,000 as a punishment for the crime he committed against Alice. Bob has two choices. He could admit his guilt and pay up so that Dawn Defense leaves him alone. Or he could refuse to pay.
Bob refuses to pay, claiming he is innocent. Dawn Defense will not want to have a reputation for harassing or using force against innocent people, so it will listen to his case.
After hearing his case, if they remain convinced of his guilt, they will insist on payment, threatening to use force against him if necessary. Bob now faces the same two choices. If he still refuses to pay, Dawn Defense will send armed men round to his house to enforce their punishment.
What if Bob has his own security? After receiving the first letter from Dawn Defense, Bob calls Tanna Justice, the security agency he subscribes to. He tells them he is completely innocent, and that he is being unjustly threatened with force by Dawn Defense. Tanna Justice calls Dawn Defense immediately to discuss the accusation of mugging. They insist on seeing some evidence. They conduct their own investigation.
After their investigation, they might agree with Dawn Defense that Bob is guilty. In this case, they order Bob to accept his punishment, and will not protect him from any force that Dawn Defense uses against him. Or they might reach the opposite conclusion: that Bob is innocent. In this case, they’ll stand by Bob, and consider the threats made by Dawn Defense to be aggressive. The two firms just cannot agree about what events took place.
So what happens now? Do they fight it out? Such a war would be costly for both sides and they would suffer reputational damage. Security firms that resort to war soon find themselves bankrupt, as consumers switch to their cheaper and more peaceful competitors. Dawn Defense and Tanna Justice have every incentive to find some peaceful way to resolve the conflict.
Since they cannot reach agreement about what happened, the two firms agree to pay for an independent arbitrator to look at the case, and agree to be bound by that arbitrator’s decision. Since both firms are large and well-established, they have a prior agreement about which firm to go in such cases.
Their chosen arbitrator – Benson Enterprises – is a firm that specializes in resolving such disagreements between security firms. Bensons examine the evidence presented by the two sides, and listen to their arguments. After careful consideration, they conclude that Bob is guilty of mugging Alice. As agreed, both sides accept the decision. Tanna Justice stand down from defending Bob.
Now with no-one to protect him, Bob has no other choice but to accept his punishment. Benson Enterprises is a highly respected firm, and no other security firm will agree to defend him now against the force threatened by Dawn Defense, unless new evidence emerges or the reputation of Bensons is brought into question.
If he is unable to pay the $10,000 punishment because he is poor, Dawn Defense will accept payment over a longer term. They may insist on taking a portion of his wages until his debt, plus interest, is paid, and may contract with his employer to guarantee they are paid. If Bob is unemployed, they may insist on taking a more active role in his life. They may force him to work at a place of their choosing.
If Bob is dangerous, or cannot be trusted to make the payments, they may restrict his movements to a certain region, or as a last resort, to a certain building – a secure workhouse where criminals are held while they pay off their debts to their victims and serve their punishment.
Bob’s crime against Alice will be noted by the various competing criminal records bureaus, and his identity will be made public in databases and in the media.
Security agencies now consider Bob a higher risk for committing further crimes, and may take steps to protect their customers from him. Bob may find it difficult to find a security firm that will accept him as a customer, and if he does he will have to pay higher premiums for it. Because of his record, other business owners may refuse to employ or trade with him, and landowners may not permit him to enter their land.
The performance of the security agencies is noted by various competing watchdog organizations that provide consumers with information about the quality of security and arbitration firms. The details of the case will be made available to auditors who check that the practices of the security and law firms adhere to quality standards.
We cannot know in advance how the security and arbitration firms will be structured. We cannot know how many firms will operate in a given area, or how large an area the typical firm will cover. For simplicity in this video, the two security firms Dawn Defense and Tanna Justice performed a number of distinct functions themselves. Free market competition is needed in order to know whether all these functions will be provided ‘in-house’, or whether some would be ‘outsourced’ or provided by distinct firms.
All these related industries keep the firms satisfying consumer demands for security and law true to their function of protecting individuals against aggression, serving justice, and maintaining order in society.
In my next video, I will consider disagreements between security firms about what punishments are to be used, and disagreements about what constitutes a crime. I will go on to consider what laws and punishments we can expect to be produced by competing free market law firms.
Part 3: The Bargaining Mechanism
Where there is free market competition, there is consumer sovereignty. What gets produced is what consumers demand, because any firm producing a good or service that does not satisfy consumer preferences will soon go bankrupt and the resources they control will pass into more capable hands.
In this video I will explain the mechanism by which consumer preferences for law and justice are reflected in the policies and decisions made by arbitrators and protection agencies.
There are two potential sources of conflict between security firms.
We previously looked at a conflict about circumstances. When a client of Dawn Defense accused a client of Tanna Justice of mugging, the two agencies could not agree about what events had actually taken place between their clients. They hired a mutually-agreed-upon arbitration firm to peacefully settle this disagreement about facts. There was no disagreement about principles. Dawn Defense insisted on punishing Bill with a fine of $10,000, and Tanna Justice had no objection about the suitability of this punishment.
But what if they did object? Suppose Tanna Justice felt that Bill should only be fined $5,000. How are the two firms going to resolve this conflict? Both firms will want to avoid war, because war is expensive and their customers are free to desert them and subscribe to their cheaper and more peaceful competitors instead.
Instead of violence, they will negotiate with each other to reach a peaceful settlement. Whether they settle on $5,000 or $10,000, or compromise at something in-between, will depend on their respective bargaining power. And this bargaining power depends ultimately on the consumers.
To illustrate how consumers influence bargaining power, let’s take a more extreme example: a disagreement about the suitable punishment for murder. Bill, a customer of Tanna Justice, murdered Alice, a customer of Dawn Defense, and, possibly after a hiring a third-party, neither side disputes this fact.
The disagreement is that Dawn Defense is in favor of the death penalty for murderers, while Tanna Justice is opposed. Will it be life or death for Bill?
It seems as though one protection agency is going to lose out here. Dawn Defense has advertised itself as pro-capital punishment. It has promised its customers that it will seek the death penalty against anyone guilty of murder. They could potentially lose lots of customers if Bill, the murderer of Alice their customer, escapes with his life. Tanna Justice is anti-capital punishment. It has promised its customers it will seek to protect them – even when they are judged guilty of murder – against anyone who threatens them with the death penalty. If they can’t prevent Bill being killed by Dawn Defense, they could potentially lose lots of customers as well.
It is in the strong interest of both agencies that their own punishment is the one used. But one of them must back down, because there is no compromise between life and death, and the only other alternative… is war.
Here is one way they might resolve the conflict peacefully. Suppose Dawn Defense estimates that if it backs down in this case, it will lose $1m worth of revenue from customers who abandon them because they cannot deliver on their pro-death penalty position. This means they would be willing to pay up to $1m to ensure that Bill gets the death penalty, so that they hold on to those customers.
Tanna Justice similarly estimates how many customers they would lose by backing down. They estimate it will lose them $500,000 in revenue, so they would be willing to pay up to $500,000 to prevent Bill getting killed.
So the two sides come to an agreement. Dawn Defense offers to pay $800,000 to Tanna Justice, if they will stand down in this case, and allow them to kill Bill. This deal is worth $200,000 to Dawn Defense. Tanna Justice accepts the offer, because, if their estimates are correct they gain $300,000 from the deal. As with any voluntary trade, both parties benefit from this agreement. As a result, Tanna Justice stand down from defending Bill, and he is executed. Consumers benefit too, because as a whole they were willing to pay $1m to see Bill killed, but only willing to pay $500,000 to see him escape with life.
We have looked at a conflict about principles, where there is a fundamental disagreement about what punishment is suitable. The conflict was resolved when a payment was made from one firm to another so that their punishment would be the one used in the case. The direction of the payment was determined by the bargaining power of the two firms, and ultimately by consumer preferences.
If the two firms are large and well-established, they will likely have an advance agreement on what to do when there is a murder between their clients. It may be that Dawn Defense makes annual payments to Tanna Justice so that capital punishment is used every time.
If we posit additional security firms, some pro capital punishment and some anti, a network of payments will emerge, with each firm calculating how much a favourable agreement with another firm is worth to them.
On other issues, such as what is the suitable punishment for mugging, the pattern of payments may look very different. The pattern is ultimately determined by consumer preferences. One of the many areas in which the protection agencies compete with each other is in how successful they are at getting their advertised punishments enforced against clients of other firms.
As we would expect, where there is a free market law, there is consumer sovereignty. The laws and punishments enforced, in cases where there is a disagreement about what the punishment should be, are determined ultimately by the preferences of consumers, through this bargaining mechanism between protection agencies. Using this framework, we can begin to make reasonable guesses about what laws are likely to exist under a system of competing providers.
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