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As another reviewer notes, this book is NOT about chaos theory (as in the mathematical theory). It is a book written in defense of anarcho-capitalism, the belief that a state is not necessary and that all services the state currently performs can best be provided by markets - the same kind of markets that produce food, cleaning services, computers, cars, and just about everything else that we use in our lives. It is terse, very well-written, and maybe one of the best introductions to the idea of anarcho-capitalism I've seen.
Chaos Theory consists of two essays written by economist Robert Murphy, devoted to explaining how an anarcho-capitalist order can provide for (a) defense and (b) law. So, while the book is not comprehensive in explaining how anarcho-capitalism might work in every area, it focuses on the two areas that will seem to most to require government action. After all, both defense and law are classic "public goods" in that they are non-excludable (it is hard to make the service available to only those who pay for it) and non-rivalrous (use by one party does not reduce the availability of the service to others). Further, law and defense are argued to be so important that their chief value is that they should be available to all, not just those who can pay for them. To put it directly, it will appear to most on first blush (yes, including me) a bit crass to view law and defense as services to be bought and sold, rather than something that justice requires to be available to everyone.
We start with private law. As Murphy envisions it, the most likely source of law will be individuals buying private insurance against theft, violence and other forms of aggression. Since there would be no state to protect individuals, individuals would insure themselves and property. (And this is reasonable considering that even WITH a state, people insure their homes, their apartments, their property, and even their lives, with private insurance). But unlike insurance WITH a state, insurers in an anarcho-capitalist society would have everything to gain from providing protection to their clients: after all, if you are insuring my property or life, it is in your interest (and mine!) to prevent the likelihood that I will be stolen from, killed, or injured.
Murphy addresses possible objections to this scheme, such as whether it would provide an equivalent level of fairness to a state system, what would likely happen in cases where insurance companies fail to deliver, etc. As to fairness, Murphy suggests that companies will have an incentive to be fair because those who acquire a reputation of unfairness (favoritism, unresponsiveness, etc) will likely acquire bad reputations and become less valuable in a market. As for companies who fail to deliver as advertised, the market is generally a better punisher of bad companies than governments are; companies that fail to deliver will most likely lose and fail to attract customers. They will go out of business.
To me, Murphy does miss a bit of the point, here. When people are in a dispute (the kind which their competing insurance companies might take to an arbitrator), the parties involved don't want abstract fairness; they want to have the ruling go in their favor. And there seems to me a pretty decent chance that the person who pays more to their insurance company will more likely have more sway than the person who pays less (either because the insurance company they patronize will be larger than the other person's, meaning that they will be able to choose a favorable arbitrator, or - if the dispute is between two clients of the same insurance company - the insurance company will make sure the ruling favors the client they can least afford to anger). Murphy doesn't really address this possibility and I'd like to have seen him do it. Maybe in a longer book.
Next, we go into the idea of private defense. The worry is that an anarcho-capitalist society will lack a system of organized defense, opening them up to the threat of aggression form countries who do. Murphy suggests that while there will be no ONE system of defense in an anarcho-capitalist society, defense companies (who will probably defend both against "domestic" and international violence) will have more incentive than a state system to offer very strong defense for their clients. Why? State systems have no accountability, as their revenue is extracted coercively, meaning that the citizens need not be happy with the service in order for the service to get money. States often not only defend, but instigate wars, because they really have nothing to lose from doing so. Companies, on the other hand, would have market incentive NOT to start wars as wars are costly and benefits are usually outweighed by costs.
Again, Murphy handles several objections. Aren't state experts going to be smarter in matters of defense than CEO's and entrepreneurs? They'll probably be equivalent, as any good company will hire experts in the area of defense so that their company can attract customers. Isn't there a possibility that the defense service will not be as promised, when the time comes to use it? Yes, but that threat is no less than in a state system (and remember, a state system has nothing to gain by satisfying its "clients"). What about free riding - the tendency of people to benefit from the defense protection of their neighbor without buying the service themselves? Well, there may be some of that, but Murphy details several possible strategies for overcoming it. (He should have also added that a state system doesn't get around the free-rider problem, but only legalizes it. People who don't pay for defense are now encouraged to derive benefit without paying.)
Without making a long review longer, this is a pretty good book to either introduce people to the idea of anarcho-capitalism or for those critical of the idea to read. As mentioned, it is a short book that tackles probably the two biggest reservations people have about anarcho-capitalism. For my money, I am still a bit unconvinced that anarcho-capitalism can really handle such problems as the prospect that one will get only the rights they can "pay for," the potential for the rich to really be able to bully the poor in matters of law, and potential problems that can come from the absence of a single set of laws that apply to everyone. (Of course, the question is not whether anarcho-capitalism is perfect, but whether it is BETTER than a state system in these regards.)
For those interested in further readings in anarcho-capitalism, check out the following:
Anarcho-capitalist law: "The Enterprise of Law" by Bruce Benson, "The Structure of Liberty" by Randy Barnett
Anarcho-capitalism and the "public goods" problem: "Social Contract, Free Ride" by Anthony de Jasay
Anarcho-capitalism and economics: "Power and Market" by Murray Rothbard
"Anarchy and the Law" by Edward Stringham [Ed.} is a good collection of anarcho-capitalist writings on many subjects.