Academic journal article The Quarterly Journal of Austrian Economics

Legal Polycentrism, the Circularity Problem, and the Regression Theorem of Institutional Development

Academic journal article The Quarterly Journal of Austrian Economics

Legal Polycentrism, the Circularity Problem, and the Regression Theorem of Institutional Development

Article excerpt

Legal polycentrism is the view that law and defense are, in relevant respects, no different from other goods and services normally supplied by the market, and that, in view of the generally acknowledged superior allocative properties of the market, freely competing protection and arbitration agencies would provide these goods at a much higher level of quality than territorial monopolies of force do (Tannehill and Tannehill, 1970; Rothbard, 1973; Molinari, [1849] 1977; Fielding, 1978; Friedman, 1989; Hoppe, 1999; Murphy, 2002; Stringham, 2007; Hasnas, 2008; Long, 2008) Legal monocentrism, on the other hand, is the term I use to designate the familiar position that law and defense are prototypical public goods, which have to be supplied by a territorial monopoly of force (otherwise known as the state) if they are to be supplied at all.

The former view developed in response to the latter, and since it is one of the newest theoretical developments in the field of political economy, its well-formulated criticisms are still comparatively rare The one I find the most interesting, and the one I would like to address in the present paper, is centered around the so-called "circularity problem" (Morris, 1998; Lee, 2008; Buchanan, 2011), which focuses on the alleged inherent institutional shortcomings of legal polycentrism The problem in question can be summarized as follows:

To show that competition between protection agencies would have beneficial consequences, [legal] polycentrists often cite results from price theory about market competition But there is a circularity problem here: markets presuppose a legal framework; hence before polycentrists can employ price theoretic arguments about market competition, they must first show that the legal requirements of markets are satisfied, that is, that property rights and contracts are enforced. If these requirements are not satisfied, it is illegitimately circular to draw on market competition as an argument for legal polycentrism. (Wiebe, 2012, p. 1)

The implicit worry here is that price theoretic arguments about market competition and other efficiency-enhancing features of free-enterprise-based institutional arrangements depend on, but do not prove the existence of the requisite legal framework in a stateless environment.

In response, it has to be noted that the difficulties ostensibly raised by the circularity argument are by no means unique to legal polycentrism. An argument of a very similar structure can be deployed against, for instance, the supposed contractarian justification for governmental legal monocentrism: it might be claimed that if the social contract can be made in the state of nature, then the state (understood as a

contract enforcer) is redundant, but if the social contract cannot be made in the state of nature, then the state is impossible. In sum, either the contractarian position is viciously circular, or the social contract, needing no meta-state to enforce it, effectively becomes a self-enforcing anomaly. (1)

The reason why I mention this parallel is because I believe that it illustrates the fact that the circularity alluded to in the context of both of the abovementioned legal systems does not point to any fundamental unworkability of either of them. In order to make this fact clearer, I will rely on the hierarchy of levels of social analysis proposed by Williamson (1998, 2000), which distinguishes between soft institutions--customs, traditions, norms, and religions--that emerge largely spontaneously and develop in an evolutionary manner, and hard institutions, whose purpose is to specify "the formal rules of the game" (ibid., p. 597), i.e., the ones referring to property rights, contract law, etc.

Where a proponent of legal polycentrism claims that "a functioning market and a functioning legal order arise together" (Long, 2008, p. 141), a proponent of coercive legal monocentrism can equally justifiably claim that a functioning state and a functioning legal order arise together. …

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