Libertarian advocates of minimal government, such as the late Robert Nozick (Anarchy, State, and Utopia, 1974), have feared that individuals in a stateless libertarian society would face corrupt or careless protection firms that used “risky” rights-enforcement procedures to determine guilt or liability. Innocent people might be held responsible for offenses they did not commit, while guilty individuals avoid paying restitution to their victims. Obviously, that would be undesirable.

Without a minimal monopoly state to prohibit such abuse and protect “procedural rights,” how could innocent people pursue their happiness securely? Nozick speculated that in an anarcho-capitalist society, a protection agency using reliable procedures would emerge as dominant, preempt risky competitors (while compensating them for putting them out of business), and eventually become a monopoly minimal government. All this would happen through a nonaggressive invisible-hand process. Nozick’s innovative theory drew critiques from the biggest names in the libertarian anarchist world, especially Murray Rothbard, Roy A. Childs Jr., and Randy Barnett. (See the Journal of Libertarian Studies 1, No. 1, Winter 1977).

The late George H. Smith, one of the premier libertarian philosophers of modern times, also provided an answer to the minarchist’s concern about risky procedures in “Justice Entrepreneurship In a Free Market” (Journal of Libertarian Studies 3, No. 4, 1979). This neglected article is well worth examining. (Also see Smith’s reply to critics.)

Before consulting Smith, we must first note a peculiarity about so-called procedural rights, such as due process, fair trial, and the presumption of innocence/burden of proof. Libertarians well know that since any good or service requires production, people cannot have a (noncontractual) right to it, for that would constitute the enslavement of the producers or the taxpayers. (This consideration does not apply to the coercive state. There, due process is a matter of limiting government power.)

Fortunately, Smith showed, we don’t need procedural rights. We have something better. In responding to Nozick’s argument, Smith charged the Harvard philosopher with an error:

The important social relation that generates the whole question of reliable procedures is not that between the Victim and the Invader, but the relationship between the Victim and impartial Third Parties. It is for his own safety, to prevent violent Third Party intervention in his quest for restitution, that the Victim must concern himself with matters of legal procedure. [Emphasis is Smith’s unless otherwise stated.]

Smith’s objective was “to deduce a theory of juridical procedure without recourse to the phantom of ‘procedural rights.’ Central to this discussion is the notion of justice entrepreneurship with its two essential ingredients: restitutive risk and the presumption of invasion.”

If, as I shall argue, it is possible to derive specific legal procedures from the principle of nonaggression, then … [it] shall be possible to speak of juridical procedures—methods of ascertaining guilt and innocence—as correct or incorrect, just or unjust. This has important implications for anarchist theory, for it presents to anarchism an objective standard by which to distinguish legitimate agencies from outlaw agencies in a free market.

Moreover, we shall see that the entrepreneurial function of Justice Agencies—the source of profit for such agencies—provides a strong impetus for fairness and impartiality. The idea that there must be a “super-agency”—a state—to oversee lesser agencies is rejected totally. (Who, for instance, shall oversee the super-agency?) Just as consumer response provides a reasonably trustworthy mechanism in a free market to minimize fraud and deception, so potential Third Party response provides a built-in check to minimize deceit and unreliability by Justice Agencies.

Smith begins by noting that “[l]ibertarian justice is primarily a matter of restitution, not of punishment in the conventional sense.” The point is to make the victim whole to the extent possible. This would include the cost of obtaining restitution and compensation for suffering.

But, Smith wrote, “Before restitution can be accomplished … several preliminary issues must be settled. Did a violation of rights occur? If so, who was responsible? And what was the extent of the responsibility? These matters of fact must be decided before the subject of restitution is germane, and they are the first priority of a court of justice…. The onus of proof is on the plaintiff to prove his case with certainty—i.e. ‘beyond reasonable doubt’—and the defendant is presumed innocent until proven otherwise.”

Next, Smith contributed original insights to anarcho-capitalist theory:

A satisfactory account of free-market courts of law (hereafter referred to as Justice Agencies) must consider their entrepreneurial function—something that has been largely neglected in previous literature. A Justice Agency is more than a “hired-hand” employed for the efficient prosecution and apprehension of criminals. Much of the Justice Agency’s service is entrepreneurial in nature.

What did Smith, who worked within the Austrian economics paradigm, mean?

Specifically, the Agency assumes the burden of risk that accompanies the use or threat of physical force in a free society. A client contracts with a Justice Agency not only because the Agency is more efficient in obtaining restitution, but also because the Agency is more likely to overcome public suspicion that the force used to obtain restitution is of an invasive rather than a restitutive nature. The degree to which an Agency can minimize this risk is a measure of its reliability and, ultimately, the source of its profit. [Emphasis added.]

His focus was on the “Third Party,” who observes an Agency using force against an alleged Invader. As a general matter, Third Parties may forcibly intervene to defend Victims; they do not need the consent of an Invader. That’s uncontroversial. But a problem arises: when a Third Party sees A using force against B, how does he know if he’s observing invasive rather than restitutive violence?

Smith wrote:

If a Third Party observes force or the threat of force, with no evidence that the force is justified, he will rationally conclude that he is witnessing an invasive act in which he has the right to intervene. And … the Third Party in this circumstance is morally justified in exercising his right of intervention. If an error is made—if a Third Party mistakenly intervenes with a true Victim seeking restitution—the responsibility for error rests with the Victim who failed to identify publicly his violent act as one of restitution.

In other words, if a Victim is going to use force to recover his property from a thief—and he wishes to do so without provoking Third Parties to defend the thief, thinking he’s the Victim—the true Victim is responsible for making clear to the public that his action is restitutive and not invasive. It can’t be the Third Party’s responsibility. Why not? As Smith wrote later in the article, “If a Third Party is required to investigate property titles before he intervenes in defense of the apparent Victim, the violent act will be concluded long before the Third Party reaches first base.” Further, since violence is such a serious matter, “If things are not as they seem [if what looks like invasion is in fact restitution], then [the Victim] must show why they are not.”

Thus, Smith continued,

From the potential conflict of [the Victim] and the Third Party, there arises a
need for a “public trial” to ascertain [the Invader’s] guilt or innocence. This trial is required not because of special “procedural rights” supposedly possessed by [the Invader] (such as the “right to a fair trial”), but because this public demonstration of [the Invader’s] guilt is the only way to eradicate or minimize the potential conflict between [the Victim] and a Third Party.

As Smith explained, “Impartial Third Parties are not privy to the special experience of a Victim seeking restitution. Man’s knowledge is limited—he is not omniscient—and Individuals must act on the context of knowledge available to them.”

So, “If [B] denies the charge of theft, and if [A] fails to substantiate it, then Third Parties are epistemologically obliged to view [A] as an Invader. Given their context of knowledge, there is no other rational option.”

Thus, whoever employs unidentified force in a free society is engaging in a high-risk activity because of possible Third Party intervention…. Although a Victim of invasion has the moral right to seek restitution from the Invader, and need not solicit the permission of others to do so, he faces the risk of violent Third Party intervention if he fails to verify his charge publicly.

There is, then, a “presumption of invasion,” Smith wrote. “This principle states that the person who is observed to initiate violence, or the threat of violence, is presumed to be the Invader unless there is evidence to the contrary.”

In a free society, victims would want to eliminate the chance that onlookers will mistake their restitutive use of force for invasive force. How can they do that? Enter the justice entrepreneur.

The Victim, by hiring a Justice Agency, transfers the risk … from himself to the Agency. It is the business of an Agency to coordinate the knowledge of the Victim with the knowledge of Third Parties—the public in general—and thereby minimize the likelihood of public condemnation as an Invader when restitutive action is taken.

This transfer of restitutive risk constitutes a major function of a Justice Agency, and this is the aspect that I have described as entrepreneurial.

“The entrepreneurial function of a Justice Agency,” Smith concluded, “provides a built-in safeguard to insure fairness and impartiality. It is not out of altruistic concern for the accused that an Agency strives to be scrupulously fair in its proceedings, but out of simple self-interest.”

In the remainder of the article, Smith showed “how the entrepreneurial function of Justice Agencies generates objective standards with which to distinguish a legitimate agency from an outlaw agency.” Those standards are essentially what we have inherited in the Anglo-American tradition.

“I have tried to show,” Smith concluded, “that there are no serious gaps in the libertarian paradigm of natural law and noncoercion such that a monopolistic government must step forward to fill these gaps.”

I highly recommend this article to interested readers.