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The Rothbardian World of Online Auctions

Mises Daily: Friday, July 08, 2011 by

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In our world of interventionist laws and regulations, I have found a Rothbardian island, so to speak — a place where the ethics of liberty live.[1]

My island is an online-auction site. Because this site is similar to myriad other auction sites, I will only provide a quick overview of the rules: Sellers offer items for sale or auction. The seller can set a sale price for items to be sold outright, or a starting bid, reserve amount, and buy-it-now price for items to be auctioned. Potential buyers can then purchase the item or place a bid.

The website, GunBroker.com, does provide a few services. It offers various tools to the seller, such as colored fonts, enhanced search-results placement, and other means to enhance the visibility of listings. The site also allows seller and buyer to leave feedback and rate each other after completing a transaction. And the site provides a means for buyers to withdraw a bid, as well as protection in case of fraud. The seller pays for these services through fees applied both up front and after the auction is won.

Simple enough.

Over time, I have begun to see this site as an example of a Rothbardian world — not a perfect example, mind you, but still one that shows the possibilities of a world without the state.

The Market

This market — the website — is owned by an individual or individuals. It is not owned by the state. In essence, there is no state in this market. The property rights of the market are defended by the website itself. The website verifies the identity of those it allows to participate, and it excludes those who violate its rules. There is no nonsense about the market being a so-called place of public accommodation — as if the rights to property are held by society instead of the individual.

If this market offends or does not provide for desired accommodations, the participants can switch to one of the other auction sites desperate for their participation.

All participants, including those who own the website, are free to exchange. They have no right to an exchange, but they are free to exchange nonetheless. And this is important: the buyers and sellers cannot coerce either the website or other sellers and buyers to enter into an exchange. Free exchange does not require an exchange to occur between unwilling partners. If a potential buyer and potential seller are banned from this market, their recourse is to go elsewhere.

Contracts Are Not Enforceable

It is one thing to bid (say) $300 on an item. It is another thing to actually pay the $300. I once made an error in bidding — the Super Bowl was on and I was distracted. I misplaced the decimal point and bid $300 in place of $30. I quickly notified the seller of my error. He was not happy. However, there was nothing he could do other than to have the website remove my bid.

Yes, I agreed — contractually, based on the language found the confirmation page — to pay the amount I entered. But he had no recourse beyond blocking me from his future auctions (which he did). He could not force me to pay.

Even if the bid was not in error, and even if the bid won the auction, there is still no means for the seller to collect. And, in a Rothbardian world, there should not be any such means. While not fulfilling a contractual agreement is certainly poor ethics, it should not be actionable unless theft occurs.

Protection Services

The website protects the buyer from fraud, and nothing else. This protection is included in the fee that the seller pays. It is important to note that this protection does not guarantee satisfaction on the part of the buyer — it simply means that the item received will be the same as the one in the photos and description posted during the auction. If there are issues with the exchange, the seller and buyer are encouraged to work it out themselves. The website does not have a mediation service. It only protects against fraud.

The website will ban those who do not conform to its rules of good auction behavior. And the website can ban arbitrarily on a whim — such is a benefit of private property. However, the website is not patrolling the market looking for offenses in order to issue revenue-producing fines. Offenses must be reported before any action occurs.

You Do Not Own Your Reputation

The website has verified certain information about the buyer and the seller. Each pays a minimal fee to have his identify verified through a credit card authorization. As participants in the market, buyers and sellers are known by pseudonym and reputation only. Of course, the seller and the winner of the auction have to make their identities known to each other in order to complete the exchange. However, until then and afterwards (for the most part), identities are hidden.

So I might be known as AustroAnarchoMan A+ (10), which means my average score is A+ for the 10 auctions I won. The buyer gets to rate the seller and the seller gets to rate the buyer. And both seller and buyer can comment on the other, as well as respond publicly to comments and ratings left by the other.

But there is nothing stopping buyer A from falsely or punitively rating seller B poorly. B can respond to the rating. However, the rating remains available for all to see. The concept of libel does not exist, nor should it.

Someone's impression of me is owned by him. The best I can do is state the case in my defense and let market participants decide whether or not they want to exchange with me. If my rating is too low, a seller can exclude my bid. And I can ignore any seller who has a poor reputation, as defined by me. So all participants are nudged toward good behavior.

Peaceful Solutions

This is just a quick survey of the Rothbardian aspects of online auctions. But the conclusion is exciting.

Given the lack of an intervening state, the mainstream view is that the market would be chaos, with fraud and other ill behavior rampant. In reality, the opposite is the case. Order prevails, and folks work out their issues and exchange peacefully.

Notes

[1] The ethics of liberty live here for the time being, anyway: the government has the ability to destroy this island with a stroke of the pen.