Paul Birch, and his article "ANARCHO-CAPITALISM DISSOLVES INTO CITY STATES," eloquently demonstrates how one can mount an overly complex argument against a position, and not realize that one single wrong premise destroys the whole argument, making one's efforts worthless. For some reason, this particular argument has popped its head in some circles, so I thought it would be a good case in point to show why it's wrong.
Birch's basic argument, as you may deduce from the title, is that MA contains within itself imbalances which eventually must make it collapse into city-States. His proposed imbalance is that the "restitution ratio" of market courts would grow and grow constantly (i.e. people found guilty would have to give back more and more resources), reducing crime to nothingness and bankrupting most or all courts.
Birch's most blatant error is committed in his passage from "just courts" (with a restitution ratio of 1) to a "restitution price war":
Courts that offer plaintiffs super-restitution attract custom away from the conservative simple-restitution courts; other courts must follow suit or go out of business. Some courts increase the ratio still more, hoping to steal a march on the competition. A "restitution war" breaks out. But unlike a conventional price war, there's no direct constraint upon the restitution ratio, since neither the courts nor the customers have to pay the bill. Where does the money come from? It comes from convicted offenders, who now face correspondingly higher penalties for their deeds. But who cares about them?
A basic objection would be to say that there's no reason to expect "just courts," from market standards of justice, to set restitution ratios at 1. Furthermore, "just courts" could only be evaluated from the standard of consumer demand. So his definition is fundamentally circular. But since his argument does not hinge on it, we can let it slide.
No, the main problem here is in his assertion that the restitution ratio would freely go up because "neither the courts nor the customers have to pay the bill." But this is a fatal misunderstanding. In a Market Anarchy, no one can be upheld to a court or code of conduct he does not agree to. Barring the odd hermit or redneck holed up in his house, the "convicted offender," therefore, is a customer who has had to pay just as much as the other customers of the same agency!
Because of this, Birch's premise turns into something rather more difficult to defend: "would customers of any agency take the risk of paying more than unity if they are found guilty of some infraction?" Obviously not! No one would want to pay 2000$ parking tickets, or be condemned to the death penalty for failing to pay his cable in time. The restitution ratio obviously cannot keep getting higher and higher. Likewise, even if I do not take this into consideration, I certainly do not wish to live in a society where the restitution ratio is very much higher than unity, because this deprives my society of the influence of otherwise productive people (excluding, of course, complete sociopaths).
His second problem is in the notion that a court monopoly would follow, because higher restitution ratios would stop crime:
Higher penalties act as a deterrent. Fewer crimes get committed. So now the courts are competing for a smaller cake; they must take a larger share or go under.
But this is equally preposterous. If the highest restitution ratio possible (the death penalty) does not deter crime, then how can a necessarily lower ratio eliminate crime? Suppose Birch is correct, and higher penalties do act as a deterrent. Then Middle Eastern States ruled by sharia law, which prescribes death for all sorts of "offenses," should have the lowest crime rates and violence rates in the world. However this is far from being the case.
He also tries to argue that bigger agencies would have an inherent advantage:
Let's simplify things a bit more by considering the two local courts only. Assume that they are in direct competition; ie, that they are attempting to supply the same market. Now suppose that Acme Insurance happens to have a larger share of the market than Joe's. Then a larger proportion of Acme's cases will be internal (disputes between two Acme clients) and a smaller proportion inter-jurisdictional. Other things being equal, Acme's average costs should thus be lower. So Acme can cut prices, drawing customers away from Joe's.
It is very unclear how a case between a customer of Joe's and Acme's should entail greater costs than an internal case. Both seem to have the exact same requirements, anyway.
Birch misses a much, much more important point. People would not select their agency solely on price. If people chose consumer products based solely on price, luxury products would not exist. Neither would ideological motivations. But that's patently disproved by our current way of life. And indeed, many people would choose to live in a certain way out of ideology more than anything else (think of communes, for instance). These agencies are likely to be very small indeed, and perhaps less efficient. But this would not stop some people from choosing them.
This is a powerful advantage of a Market Anarchist society, once it is established. Coupling guiding principles to consumer demand, instead of ruling class values, creates a very different sort of community and society. If we look at what the market has done for our consumer products, we can only imagine what a market of ideologies could do, the incredible progress that could result. Compared to such people, we would no doubt appear very primitive.