Notes on The Practical Case For Anarcho-Capitalism

In the lecture below, Peter Leeson starts by defining anarchy and justifying why it is important to study how social order emerges privately. A large portion of countries already have weak or failing governments. Also a quarter of world GDP comes from international commerce (in absence of a world government).

He digs into three levels of his case: self-enforcing contracts in presence of government backdrop (the easy case), solutions in absence of government backdrop and with force asymmetry, and finally comparing the efficiency of anarchy to government (the hard case).

He covers two broad classes of solutions to building trust and enabling social order: reputation and signalling.
Reputation works in many cases (he gives everyday examples, which are numerous since we rarely fall back on expensive government court services), but has some limitation if there is no repeat interraction (or if individuals are impatient and discount long-term gains), or if the population is large (hard to communicate) or diverse (non-uniform expectations).
Signaling is an ex-ante mitigation (before the interaction) which improves on reputation by itself.
He gives examples of restaurant reputation, brand signaling (banks, Coca Cola), the not so wild Wild West, international arbitration, diamond traders, mafia rules, ancient Iceland and Somalia.

To address the hard case, he starts by clarifying the notion of relevant alternative. Is is irrelevant to compared Iceland, the Wild West or Somalia to the modern US. Example of Somalia is important, as it is doing well on many development indicators compared to stateful Somalia and it’s African neighbors.
He also makes an interesting point about stability of anarchy. Does it devolve into a state? Somalia  is good example, where different factions are keeping a balance of power without tendency towards centralization (except whe foreign government step in to nominate the official government).

 

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