by Juan Fernando Carpio

Introduction: The Blind Spot of Legal “Simple Minds”

Defenders of the self-restraining-minimal-state fantasy cling to the belief that the production of law and security is magically exempt from economic laws and principles.

They argue that “objective law” requires great legislators writing constitutions, state judicial monopolies, and centralized written codes.

But here’s the inconvenient truth: the production of law and security is not exempt from economic laws and principles.

Just as central planning fails in the economy, it fails in the legal realm. Without market prices and competition, legislators cannot rationally calculate the costs and benefits of laws, leading to regulatory tangles, contradictions, and capture by interest groups.

But there’s another layer to this problem: we live in an era without great men or classical liberal elites. Contemporary legislators are not the enlightened philosophers of the 18th century; they are mediocre politicians captured by special interests.

The solution is not to wait for “better legislators” (who do not exist) but to restore judicial competition: allow multiple courts to compete for clients, generating precedents through the resolution of concrete cases, with law emerging from the bottom up—critarchy, not legislocracy.

Section I: Mises’ Argument: The Impossibility of Socialist Economic Calculation

1. The Original Thesis (1920)

In Economic Calculation in the Socialist Commonwealth (1920), Ludwig von Mises demonstrated that central economic planning is rationally impossible without market prices.

The argument:

1. Market prices aggregate dispersed information about preferences, resources, and technology.
2. In socialism (state ownership of the means of production), there are no markets for capital goods.
3. Without prices, planners cannot calculate opportunity costs, relative efficiency, or optimal allocation.
4. Result: Overproduction of unnecessary goods, shortages of critical goods, massive waste of resources.

Historical Evidence:

• The USSR produced millions of useless tractors while food was scarce.
• Venezuela produces oil but imports refined gasoline.

Without price signals, allocation collapses.

1. The Legal Analogy: Legal Socialism

State legal monopoly = Judicial socialism:

• Legislators monopolize the production of norms (like central planners monopolize economic production).
• No prices and costs of law enforcement and for rules (competition among courts that reveal which rules are efficient).
• Result: Accumulation of contradictory laws, regulatory obsolescence, collapse in coherence—the impossibility of rational legal calculation.But above all, law never tends towards objective because as the Public Choice School demonstrated (J. Buchanan, Nobel Prize and G. Tullock), politician-made legislation always favors interests groups, pressure groups and lobbies. There is no such a thing as politician or State-made “objective” law, unless one decides to ignore the last 3.500 years of economic history and political and war history. 

At this point in human histori, being naive about concepts like “the constitution limits the government in size and scope” (when evidently it didn’t and it doesn’t) is no virtue.

Contemporary Examples:

Example	Description
U.S. Federal Code	54 titles, ~60,000 pages, nobody can read it completely (not even judges or lawyers).
European Regulation	~170,000 pages of accumulated regulations (European Commission, 2024).
Argentina	Civil, Commercial, Penal Codes, plus special laws = +100,000 current norms (conservative estimate, Infoleg, 2024).

Misesian Question: If no human being can know all current law, how can there be “rational application” of the law? It is analogous to a central planner who cannot know all preferences and resources in the economy.

Friedrich Hayek’s work on the use of knowledge in society reinforces this point. Hayek argued that the knowledge required for effective central planning is dispersed among individuals and cannot be centralized. Similarly, the knowledge required for effective legal planning is dispersed among judges, lawyers, and citizens, and cannot be centralized in a legislative body.

Section II: The Production of Law and Security is Not Exempt from Economic Laws

1. The Economic Nature of Law and Security

Law and security are not ethereal concepts; they are goods and services subject to economic principles.

Economic Principles:

1. Scarcity: Resources (time, expertise, enforcement capacity) are limited.
2. Cost: Producing laws and security has opportunity costs.
3. Supply and Demand: The need for legal services and security varies.
4. Incentives: Producers respond to incentives (reputation, profit, power).

Implication: Just as markets allocate goods and services efficiently, markets can allocate law and security efficiently.

1. The Market for Law and Security

Market Mechanism:

• Competition: Multiple providers compete for clients.
• Prices: Fees for legal services reflect supply and demand.
• Innovation: Providers innovate to attract clients.
• Quality Control: Reputation and client feedback ensure quality.

Historical Examples:

Example	Description
Medieval Lex Mercatoria	Private arbitral tribunals at trade fairs (Champagne, Bruges, Lübeck). Judges chosen by merchants, without state coercive power.
Celtic Ireland	Private judges (brehons) competed for reputation, without state coercive power.
Free Iceland	Individuals chose which goði (judge-leader) to follow, could change annually.

Lesson: Competition generates efficient, adaptable, and high-quality law and security.

Section III: The Lack of Good Elites Finishes the Case Against Legal Simpletonism

1. The 18th Century vs. Today

18th Century:

• Enlightened philosophers (Locke, Montesquieu, Smith).
• Classical liberal elites committed to liberty and rule of law.
• Limited government and respect for property rights.

Today:

• Mediocre politicians captured by special interests.
• Regulatory capture and rent-seeking.
• Expansive government and erosion of property rights.

Implication: The lack of good elites makes centralized legal systems central-design (vertical design) even more problematic.

1. The Blindness to Historical Facts

Historical Facts:

1. Common Law: 800 years of coherence without a central legislator.
2. Lex Mercatoria: 500 years of consistent rules without a state.
3. Celtic Ireland: 1,000 years of shared written codes without a monopolistic legislator.

Blindness: Legal “simple minds” ignore these historical facts, clinging to the belief that centralized systems are superior.

Reality: Decentralized systems have produced efficient, adaptable, and just law and security.

Section IV: Response to Randian (and Similar) Objections

 

Objection 1: “Without a central legislator, each judge would apply their own ‘subjective’ law, causing chaos”

Historical Refutation:

• Common Law: 800 years of coherence without a central legislator until Westminster (19th century).
• Lex Mercatoria: 500 years of consistent rules without a state.
• Celtic Ireland: A thousand years of shared written codes (Senchus Mór) without a monopolistic legislator.

Mechanism: Competition generates convergence towards efficient norms. Judges who rule arbitrarily lose clients. Successful precedents spread through imitation (like successful business innovations spread in markets).

Economic Analogy: No one says “without a central planner, each entrepreneur would produce incompatible goods, causing chaos.” We know that competition generates de facto standards (e.g., USB format, TCP/IP protocol) without a central designer.

Objection 2: “We Need Written Constitutions to Protect Fundamental Rights”

Empirical Refutation:

Example	Description
U.S. Constitution (1787)	Limits federal government to enumerated powers. Current result: Federal government regulates everything (from toilet sizes to health insurance content). Constitution ignored through expansively interpreted “commerce clause.”
Weimar Constitution (Germany, 1919)	Declared extensive rights. Result: Hitler came to power legally and suspended everything (1933).

Comparison with Common Law:

• Magna Carta (1215): Was not a “constitution” but a contract between the king and nobles limiting taxes. It worked because it was backed by decentralized force (barons could rebel).
• Habeas Corpus: Emerged from judicial precedents (13th century), not legislation. It protected freedom for centuries because competitive judges applied it case by case.

Lesson: Written constitutions are worthless paper without decentralized enforcement. Judicial competition generates enforcement because judges depend on reputation.

Objection 3: We Live in an Era Without Great Men; Yet We Need Institutions Designed by Enlightened Elites

Response: That’s exactly why we need competition, not monopoly.

If there are no great legislators:

• Legislative monopoly = bad legislators without competition = inevitable legal socialism and privilege and injustice.
• Judicial competition = bad judges lose clients, good judges prosper = institutional Darwinism.

Economic Analogy: We don’t need “great entrepreneurs” to have good products. We need competition that selects efficient companies and eliminates inefficient ones.

Rand made a philosophical mistake: She assumed that “objective law” requires rationalist epistemology (great minds designing perfect codes). But history shows that objective law emerges from evolutionary processes (judicial competition generating precedents), not centralized design.

Conclusion: Restoring Norm Markets

Central Thesis:

The state monopoly on legal production faces the same problem that Mises identified for the socialist economy: the impossibility of rational calculation without market signals. Without competition among courts, there is no mechanism to discover which norms are efficient, fair, and adaptable. The observable result is legal socialism: the accumulation of contradictory laws (+185,000 pages in the U.S., +170,000 in the EU), regulatory obsolescence, capture by lobbies, and the impossibility of rational compliance.

The solution is not to wait for “better legislators” (who do not exist in contemporary mass democracies) or “better constitutions” (which are worthless paper without decentralized enforcement). The solution is to restore judicial competition: allow multiple courts to compete for clients, generating precedents through the resolution of concrete cases, with law emerging from the bottom up—critarchy, not legislocracy.

Historical Evidence:

The five most successful legal systems in the West—Common Law, Lex Mercatoria, Brehon Law, Icelandic Alþingi, Republican Roman Law—operated through decentralized judicial competition, not legislative monopolies. They lasted for centuries (Common Law 800 years, Lex Mercatoria 500 years, Ireland 1,000 years) generating coherence, adaptability, and protection of rights without the need for “great legislators.”

When Rome, England, and other systems centralized legal production (Roman Empire, Westminster Parliament), legal quality collapsed: rigidity, contradictions, capture by concentrated interests—exactly what Mises predicted for socialized economies.

Implication for Randians and Defenders of the Minimal State:

If they accept Mises’ argument against economic socialism, they must accept its application to law. They cannot defend the state judicial monopoly while attacking the state economic monopoly—it is philosophical inconsistency.

The “objective law” they seek will not come from constitutions written by mediocre politicians in mass democracies. It will come from restoring norm markets: competition among private arbitral tribunals (already existing in international commercial arbitration), expansion of special jurisdictions (economic zones, charter cities), and eventual transition to full critarchy—government by competitive judges, not monopolistic legislators.

History has already conducted the experiment. The data is conclusive. Judicial competition produces better objective law than legislative monopolies. Ignoring this evidence due to dogmatic attachment to the “need for a minimal state with judicial monopoly” is to commit the same error as socialists: subordinating empirical reality to preconceived theory.

It is time to apply liberty ideas consistently: if competition works in the economy, it works in law. The impossibility of socialist legal calculation is as real as the impossibility of socialist economic calculation. And the solution is the same: markets, not monopolies.

Juan Fernando Carpio, M.E.E.

Juan Fernando Carpio is a seasoned economist, author, and translator based in Quito, Ecuador, with over 25 years of experience in development economics and Latin American culture at USFQ and elsewhere. He is notably the author of “10 Lecciones de Economía,” a work that provides a concise and provocative introduction to Austrian economic thought applied to real-world issues. He has actively contributed to economic discourse through academic teaching, research, and public intellectual work from a Rothbardian perspective, advocating for market-oriented reforms and social change in Ecuador and the broader Latin American region. He can be found in X as @jfcarpio 

Further Readings

For those interested in delving deeper into the themes discussed in this article, the following readings are recommended:

Works by Stephan Kinsella (a continuator of the Mises-Rothbard-Hoppe line of ideas)

1. “Law Without the State” – This article explores the possibility of a legal system without a central state authority, arguing that law can emerge spontaneously from the interactions of individuals.
2. “Legislation and Law in a Free Society” – Kinsella discusses the nature of law and legislation in a free society, critiquing the idea that law must be produced by a central authority.
3. “What Libertarianism Is” – This article provides an overview of libertarian principles, including the idea that law and security can be provided by the market rather than the state.
4. “Against Intellectual Property” – While not directly about legal systems, this work by Kinsella critiques state-enforced intellectual property laws and argues for a market-based approach to innovation and creativity.

Additional Readings

1. “Economic Calculation in the Socialist Commonwealth” by Ludwig von Mises – The seminal work that argues central economic planning is impossible without market prices.
2. “The Use of Knowledge in Society” by Friedrich Hayek – This article discusses the limitations of central planning and the importance of dispersed knowledge in a market economy.
3. “The Law and the State” by Bruno Leoni – Leoni argues that law is not the product of legislative enactment but the result of individual interactions and the gradual development of customs and traditions.
4. “The Enterprise of Law: Justice Without the State” by Bruce L. Benson – This book provides historical examples of how law can be produced and enforced without a central state authority.
5. “Law, Legislation, and Liberty” by Friedrich Hayek – A three-volume work that explores the principles of a free society, including the role of law and the limitations of legislation.
6. “The Market for Liberty” by Morris and Linda Tannehill – This book discusses how a free market can provide law and security without a state.
7. “The Machinery of Freedom: Guide to a Radical Capitalism” by David Friedman – This book explores how a stateless society could function, including the provision of law and security.

These readings provide a deeper understanding of the economic principles governing the production of law and security, the historical examples of decentralized legal systems, and the critique of centralized legal systems.