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Economic Reflections 8 (part 1): Initial Reflections on Market Anarchy

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Discussing private law in Chaos Theory, Robert Murphy argued that the market is capable of defining and protecting property rights without a State. Individuals have natural rights, on which all (his emphasis, 13) social relations would be managed by contract. His theory aims toward a just and equitable—not equal—society through the use of market mechanisms to control externalities, both negative (violations of individuals and their property) and positive (removing incentives to free ride.)  I see unresolved areas in his theory; a few follow.

Regarding the market reputation and insurance method of controlling individual and corporate behavior, the transaction costs to collect accurate, equitable information that is available in real-time would seem very high; presumably entrepreneurs would find affordable solutions, with tradeoffs of risk, privacy and anonymity.

Corollary to broad information available to evaluate the risk of trusting any given individual, the reputation capital acquired by transparently opening one’s behavioral record for broad scrutiny potentially comes at a very high cost of privacy and anonymity, while choosing a high degree of privacy would seem to reduce one’s reputation capital, hence increase one’s risk, and thus increase the cost of participation or even result in exclusion.  The two choices seem to me to introduce social distortion by introducing a false causality that choosing privacy entails that one must have something to hide.

Regarding uninsured individuals, who would pay the costs of enforcement and detention for uninsured violators? Would not even a minimal system incentivize free riding among some? With no guarantee against future damage, detained violators unable to pay the demanded insurance premiums might never be released, entailing increasing and ongoing high costs—to say nothing of creating a high financial incentive to eliminate cost and risk by killing them, perhaps while “escaping;” one need only define the uninsured as proving their unfitness for society by not taking the insurance necessary to participate as a peer.

Additionally, his example (34n13) of a $10 annual premium for a 1 in 1,000,000 murder risk is for a very low risk person. Assuming premiums would be set by evaluating (at least) age and local socio-economic environment, murder insurance for a young man, or rape insurance for a woman, in a high risk and low income slum could be unaffordable, hitting the at-risk poorest the hardest.

Finally, and most puzzlingly, he offered no theory of legitimate property rights. He seemed to assume a fairly fixed and widely accepted set of intrinsically immoral acts—e.g., murder and rape—that needs no elaboration; philosophers and theologians only enter the discussion “after we have reached agreement and are secure in our lives” (25.) Yet the balance struck between inalienable natural rights and alienable contracted rights is crucial. Natural rights guarantee certain things due one and preclude actions against one; altering that balance could have enormous consequences for justice.

Murphy, Robert. (2002.) Chaos Theory. New York: RJC Communications.

* This is adapted from a series of one page papers I wrote for an independent study in micro- and macroeconomics; the material included the excellent text The Economic Way of Thinking by Heyne, Boettke, and Prychitko, as well as several texts I brought in from communitarian, market anarchy, and experimental economic perspectives.

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