Private Governance: Creating Order in Economic and Social Life

by Edward P. Stringham

From the first stock markets of Amsterdam,London, and New York to the billions of electronic commerce transactions today, privately produced and enforced economic regulations are more common, more effective, and more promising than commonly considered.In Private Governance, prominent economist Edward Stringham presents case studies of the various forms of private enforcement, self-governance, or self-regulation among private groups or individuals that fill a void that government enforcement cannot. Through analytical narratives the book provides a close examination of the world's first stock markets, key elements of which were unenforceable by law; the community of Celebration, Florida, and other private communities that show how public goods can be bundled with land and provided more effectively; and the millions of credit-card transactions that occur daily and are regulated by private governance. Private Governance ultimately argues that while potential problems of private governance, such as fraud, are pervasive, so are the solutions it presents, and that much of what is orderly in the economy can be attributed to private groups and individuals. With meticulous research, Stringham demonstrates that private governance is a far more common source of order than most people realize, and that private parties have incentives to devise different mechanisms for eliminating unwanted behavior.Private Governance documents numerous examples of private order throughout history to illustrate how private governance is more resilient to internal and external pressure than is commonly believed. Stringham discusses why private governance has economic and social advantages over relying on government regulations and laws, and explores the different mechanisms that enable private governance, including sorting, reputation, assurance, and other bonding mechanisms. Challenging and rigorously-written, Private Governance will make a compelling read for those with an interest in economics, political philosophy, and the history of current Wall Street regulations.

Genres: Economics, Politics, Nonfiction, Political Science, History, Philosophy, Law

298 pages, Kindle Edition

First published May 8, 2015

Reviews

[Jeffrey Tucker · Rating 5 out of 5]

As time has gone on, this rightly continues to be the standard work on self ordering systems in real life, particularly as they pertain to financial markets. This is the book that built the author's public reputation -- rooted in vast scholarship but very accessible as well.

[Garrett · Rating 5 out of 5]

What a fantastic work. Stringham can clearly speak to the theory, but he's done so much more here. True to its word, this is an honest-to-goodness presentation of case studies demonstrating private governance can be, and has been, applied in the real world (right before us, every day, even if we don't recognize it), with success beyond anything centralists and statists would even dare dream.

On a specific note: It's tremendously refreshing to find an author in this realm, and of such a work, who will dedicate an entire chapter to the import of personal / individual governance, recognizing any (non-coercive) system without it is doomed from the start. Beyond that, Stringham has deified no one and is ready to critique the positions of Mises, Hayek and so many others on whose shoulder he might stand. How else is progress to be made? Tremendous piece.

[Shane · Rating 4 out of 5]

Three and a half stars. This book offered a very interesting perspective. It was a bit dry at times making the material a little more difficult to digest.

I especially liked the chapters on PayPal and private policing. While Stringhams biases are obvious, He openly admits to them. I do like his approach of historical examination instead of speculation. It makes it much easier to understand how private governance might work when you can easily see how it has worked in the past.

[Rajiv · Rating 4 out of 5]

Steeped in scholarship, this book cites modern and historical examples of how market forces are more efficient in regulating commerce and society than government. Each chapter is a detailed study on topics like early and modern stock exchanges, complex investment vehicles, and the advent of ecommerce. There are great summaries on the works of Adam Smith and Friedrich von Hayek for the uninitiated. Highly recommended.

[Don Lim · Rating 5 out of 5]

Stringham argues, and I would say successfully, that despite the common belief of governments supplying rule of law and protection for markets, trade, and exchanges to occur; private individuals, companies, and other entities are able to effectively govern themselves. The view that governments are the foundation for private property and exchange is what Stringham dubs: legal centrism--and his empirical work has shown government is not always helpful nor necessary in facilitating good behavior. In fact in many cases, government often lacks the technical skills and knowledge, does not have the right incentives, is corrupt, is underfunded, or creates sweeping legislation prohibiting certain good behaviors.

In the case of PayPal, government was unable to solve the problem of many small illegitimate payments made by stolen credit cards. In the case of the Gold Rush in California, the police force was nonexistent and later on, was underfunded. In the case of stock exchange and financial risk, the government was ignorant of the trade practices and the financial tools. It will be surprising to most how rules, order, and customs can arise not because of government--often in spite of it--but due to what Stringham describes as club formation by internalizing costs and excluding harmful behavior. The incentive to trade, the day-to-day interactions of individuals, the common interests, all play a role in providing private governance. In other words, the role of government is not even necessary in protecting individuals nor ensuring safe trade.

[Byrne · Rating 3 out of 5]

This book proved less than I hoped. It cites some good examples of private institutions offering cheaper and better governance than the government, but:

- Most of the examples take place in the context of some kind of metaphorical gold rush (the e-commerce boom, the Dutch East Indies Company, the rise of credit derivatives). The exception is a liberal gold rush.
- The book's tone goes back and forth between semi-casual academic and chip-on-the-shoulder Internet Libertarian. However gratifying it may be, the world was it crying out for another joke about Obama's peace prize and stone warfare.

I came away from this book convinced that private governance is effective, but only arises when there's a sudden increase in wealth, ideally coupled with lower transaction costs. This is not really the book's thesis, though.

[Blake kunin · Rating 4 out of 5]

Stringham breaks down his thesis into three parts, focusing primarily on how private governance already exists in our day-to-day lives through financial markets, private policing, and third parties involved in conflict resolution.

His arguments are backed by thorough research, and he also contrasts his views with those of Hayek, highlighting both where Hayek was aligned with his thinking and where he fell short.

If you’re looking for a book that will leave you noticing examples of private governance all around you, this is a great read.

[Daniel Moss · Rating 5 out of 5]

An absolute masterpiece! It's the kind of book that makes me want to break the NAP and force people to read it - if only that use of force ever did any good.

[Lukas Mason · Rating 5 out of 5]

Top of the line. Accessible yet unabashedly rigorous in its standards of thought.

[The American Conservative]

"Legislators, and even judges, do not have good feedback mechanisms that will lead to better law. Stringham argues that what is needed is competing legal systems—competing systems of governance."

David R. Henderson's review: http://www.theamericanconservative.co...

[Jared Tobin · Rating 4 out of 5]

I really enjoyed this book. Private Governance is written with a scholarly and quite enjoyable style and discusses a number of examples of formal and informal governance mechanisms used by private, voluntary organizations in recent history.

The examples that stood out most for me were the early days of the Amsterdam Bourse and London Stock Exchange, but there are also sections on lesser-known organizations such as the San Francisco Private Police.

The crux is that when endowed with things like reputation mechanisms, powers of exclusion, contracts & financial instruments, etc., private clubs are more than capable of producing robust governance structures for themselves. Indeed, Stringham points out that these structures tend to be superior to those produced by government. This should not be not surprising; refer to Hayek's The Use Of Knowledge In Society and note that, like an individual, a private club possesses more (and more pertinent) local information about its desires and constraints than does any distant bureaucrat. Recommended.