Small-Town Anarchy

Rothbard and many others have written about the potential benefits of a free market in protection, law, and defense. These include lower cost, greater efficiency, higher quality, more consumer choice, and protection of individual liberty.

In our current political climate, such a system can seem distant and utopian, an idea to be quietly developed by economists and philosophers until people's attitudes and beliefs drastically change.

However, activities like the Free State Project raise another possibility. What if a small, libertarian-minded town or county, perhaps in New Hampshire or Montana, passed a law decreeing that town police and judicial services would, beginning on a certain date, be supplied entirely by the private market?

Naturally, the state (or the federal state) might oppose such action, but we shall suppose that the effort to pass the law has been successfully carried out.

Entrepreneurs would begin creating police firms, advertising their services, and signing up customers. Existing local police could seek employment among the new firms, or start their own firms (or even get going on that fishing-guide business they've always secretly dreamed about).

Private mediation and arbitration firms, if not already present, will spring up in anticipation of the closing of the town court. They will begin talking to the new police agencies, the agencies' customers, and each other, to sort out some initial contracts and agreements about how they will work together.

The people of the town, knowing of the situation (having themselves pushed heavily to establish it), would study their options and decide which protectors they will choose for when the police go out of business. The smart police agencies will include a "Fines and Penalties" section in their contract stating that, if a customer commits crimes against others, the customer will be subject to fines and other specific penalties. Violent crime might lead to imprisonment. (We may as well assume that the state police would claim jurisdiction over major crimes like murder).

Other firms might experiment with other kinds of agreements. However, in order for the firm to provide full protection to all its customers, the protection must be reversible – if you want protection against theft, you must agree not to steal. If you want protection against violence, you must agree not to initiate violence.

On the appointed day, the town police, court and jail will close for business and their assets will be sold off, possibly to the new police and arbitration agencies. The town will no longer collect taxes to pay for these services, either.


From then on, whenever a person in town was a victim of a crime, he would contact his police service. They would be responsible for identifying the criminal and filing an arbitration claim against him.

If the accused criminal has a contract with a police company, then his police company will respond to the claim. They will face the victim's police company in arbitration. If the accused is found guilty, he will be contractually obligated to suffer penalties.

If both parties subscribe to the same police agency, the situation might be handled by internal investigation and arbitration, or the agency might find it preferable to submit such conflicts to the expert third-party arbitrators.

In cases of theft or destruction of property, the most likely arbitration finding would be financial compensation paid by the criminal to the victim. After studying numerous examples of voluntary legal systems, Bruce L. Benson finds that in such systems:

If the accused offender is found guilty, the “punishment” tends to be economic in nature: restitution in the form of a fine or indemnity to be paid to the plaintiff. Liability, intent, the value of the damages, and the status of the offended person all may be considered in determining the indemnity. Every invasion of person or property is generally valued in terms of property.

Imprisonment would rarely benefit anyone in property crime situations, and imprisonment would likely require interaction with the state (unless the town jail is remade into a long-term prison, which we won't assume).

The state would probably still claim jurisdiction over serious violent crime like murder, rather than allow private companies to handle the outcome. In local, minor cases of violence, the situation could be handled according to police contract. In these minor cases, the victim might prefer some restitution from the criminal, rather than the nothing he would receive from the state.

A completely free-market legal system could certainly handle cases of serious violent crime like murder, if needed, but that is beyond the scope of discussing a small free-market town inside a monopoly state. Town police companies would likely capture such offenders, hold them at the town jail, collect evidence, and turn it over to the state.


Because of the costs of arbitration, police agencies would seek to avoid it when possible. They would train security officers to diminish conflict and keep the peace rather than escalate any conflict. These "peace officers" could also be trained to adjudicate disputes and propose solutions and restitution on the spot.


Any roads owned by the town could be managed by a remnant of town government, by the chamber of commerce or other voluntary association, or otherwise sold off to private owners. (This could give new meaning to the Adopt-A-Highway program.) Someone will own the roads. The road owners will need to provide security, which can be purchased from the private police companies, some of which might even specialize in managing and securing roads.


We will consider the "town jail" as a local, short-term holding facility. Violent criminals would be held there until they were turned over to the state. The police companies might fund the jail through joint contributions, or the jail might be an independent business, selling its services to the police agencies through fees or subscriptions. Any nonprofit, "volunteer" neighborhood protection groups might also subscribe to the jail, so they would have a place to put violent offenders.

The customer's contract will stipulate under what conditions he can be jailed by his own police company (and other police companies with which his company has mutuality). This might include acting violent, being destructive to others' property, being publicly drunk and/or naked, etc.

Police companies would want to avoid unnecessarily jailing their customers, or any potential customer, because of the fear of losing business (or potential business), and because of the cost. They would need this option as a last resort, however, to fully protect the rest of their customers from violent criminals (unless the market devises a better means).

In the case of unlawful imprisonment, the victim would be able to file a kidnapping claim against those who imprisoned him. Arbitration would reveal whether the police company's choice to jail was reasonable under the circumstances. This would also deter police companies from excessive, unnecessary jailing.


Those who are very poor and have trouble affording police services might join mutual-defense groups and contribute their own labor, instead of subscribing to a service, along with others who prefer this volunteer-organizing approach for their own reasons.

If someone does not subscribe to police protection, nor join a mutual-defense group, and is the victim of a crime, he still has a claim against the criminal. Thomas Whiston writes about the stateless legal order of medieval Iceland:

The poor were at no disadvantage. The poor could sell their right to justice to someone, such as a chieftain or another respected peer, who could collect or make right upon the victim. In this respect, the right to transfer restitution acted as an equalizer for the poor. In cases where the victim did not want restitution, the guilty parties had no obligations imposed on them.

The unprotected victim can sell his claim to a police company, who can then profit by pursuing restitution from the criminal party. The police companies might also do this in the interest of stopping a criminal before he aggresses against their own customers.

If someone is a serial offender, and persists in committing crimes, it might be that no police company wants to protect him at any price. Protecting someone who repeatedly provokes conflict can become very expensive. It would be in the interest of police companies to make the identity of such criminals known to the community, so that everyone could keep watch on the criminals and avoid putting any trust in them. Such a criminal might find it hard to get a job or do business in the community, and so would have economic incentives to move away.

He will also not enjoy any police protection in this town. Every police company could ban him from each of its protected properties, essentially exiling him from anywhere in town but his own private property. (And this might include those local roads!) If others commit crimes against him, he will find the police companies and arbitrators unhelpful.


There may be people who live in town and refuse to recognize the free market system as legitimate. If charged with a crime, they may refuse to arbitrate, and will not be contractually bound to do so. In this case, the victim or his police company could pursue a civil suit against the offender, or file charges with the state authorities. In a state-controlled society, it will sometimes be necessary for police companies and victims to interact with the state to obtain justice.

(In a completely free-market world, "refusal to arbitrate" would carry much heavier implications, possibly turning the refuser into an "outlaw." No police company will want to provide service to an "outlaw," even if he is later the victim of a crime. No arbitration company will recognize his claims. No one would suffer any legal penalties for committing crimes against him.

In such a free market world, refusal to arbitrate would be a dangerous choice, potentially sacrificing all of one's present and future legal protections and claims. It would be in the self-interest of every police company to avoid taking on such a person as a customer, since it will only lead to trouble and expense.

But we digress.)


Out-of-towners accused of a crime might have the option of signing a contract to work within the local arbitration system, or they might insist on being handed over to the state for their crimes. In this case, the local police company involved would be happy to assist with the prosecution. Those who are victims while visiting might have the same option: the local market system, or the state.


Private police companies would have a strong incentive to treat everyone in town with courtesy and respect, unless caught in the act of a crime. Everyone is either a customer or potential customer. Abusing customers (or even non-customers) would cause people to hate the company, destroy its reputation, and lead to lost customers, lost revenue, and ultimately bankruptcy. A police-abuse victim could switch police companies and file a claim against the abusive company. The other police companies would be eager to bankrupt a rough competitor with claims, and would always be ready to use force in the defense of their customers.


A town that relinquished its police and court functions to the market would benefit from efficient protection and conflict resolution. The greatest share of costs would fall on offenders. Victims would be the center of the legal process. The private institutions would still need to interact with the larger state environment around them, but at least town matters could be handled by the police and arbitration companies. As long as consumers are free to choose their own protection, and entrepreneurs are free to start protection agencies and arbitration firms, an anarchist town would be a very free and safe place to live.

Low taxes and low crime rates would attract new residents and businesses, helping the town prosper. If one community could successfully establish a free protection and arbitration market, it would provide a model that could be imitated in communities across the country and around the world.

April 4, 2009