“Private Governance” by Ed Stringham

This is a good primer for anyone unaware of how the market can establish laws and regulations outside of a government framework. Stringham uses the example and analogy of private clubs that are able to form their own personal codes without the recourse to a monopoly of force. He then deals with the problems of negative externalities that often arise with public goods and how to best avoid free-rider problems. Much of the book details the rise of financial institutions that arose despite the lack of formal government laws and, in fact, sometimes, with laws that actually forbade them. Stringham recounts the formation of the first joint-stock companies like the United East India Company in 1614 Amsterdam. The Dutch government tried to prevent trading in stock-paper and especially short selling and futures contracts, but these inventions flourished nonetheless. Despite having no recourse to formal law, traders still acted honestly and fulfilled their obligations, for the most part. In London, barred from the main trading facilities for goods, stock traders formed their own private coffee houses, which eventually transformed into the City’s stock exchange. More controversially, perhaps, Stringham then goes on to detail how even brick and mortar services such as fire and police provisions have been provided by private parties when the government was unwilling or unable to adequately perform the task. The Patrol Special Police in San Francisco is just one modern example of private firms setting up where there was a demand that was not being met by public services. This private force was tailored to the demands of their clients, so whereas they prevented burglary and assault in San Francisco’s Chinatown, they were little concerned with the consensual acts of opium smoking and gambling. Stringham posits that absent government enforcement there would still be private law that evolves spontaneously, organically, and evolutionarily where and when the need occurs. Law can exist without legislation, but legislation rarely is enforceable when its contradicts civil society’s notion of law.