Yesterday, I was playing rugby in a tournament held a couple hours away. The tournament was organized from the ground up by the players who were there. Teams paid a few hundred bucks to the club organizing it for the tent and the permit to play and all that fun stuff.
On the field, the games were refereed by former players. All the players knew the rules and deferred to whichever call the refs made, even if the refs were particularly bad. Watching this, and playing in it as well, the thought occurred to me how regulation is inevitable.
Let me take a step back. There is a lot of political rhetoric these days about how the government is infringing on the free market and how there should be less regulation or, coming from the other end, how the free market is screwing the common joe and there should be more regulation. I'd like to present the idea that current government regulation, and whatever minute changes in it occur, are the products of the free market.
To illustrate this example, let us imagine a single industry: the food processing industry. Let us all imagine, for our purposes, that we live in a libertarian paradise and there is no government regulation or FDA or any of that. There are solely the food processing companies, competing against one another, and the consumers. Now, the food processing companies wish to make as much money as possible doing as little work as possible (as we all do). Therefore, they will take whatever options they can to make their production cheaper.
Likewise, the consumers want as much as possible for as little as possible. Let's say that all companies currently have equal market share, and all produce one product, Food, which they all produce and sell for the same price. Let's say Company A realizes that if they add a little sawdust to Food, they can sell it for less while still making more money than Company B. Unfortunately, sawdust in Food causes roughly one in a thousand consumers to have horribly scratchy throats and start coughing blood.
Company A doesn't want their consumers to know this, rightly assuming that it may scare some consumers off. So, they don't anyone, but they do lower their price. Company A starts gaining market share. As it happens, 0.01% of their consumers get pissed off when they start coughing blood, and they start buying from Company B. However, this is not enough to stem the tide of consumers heading to Company A, so Company B starts a marketing campaign, accusing Company A of child slavery through television ads, radio ads, and well-funded whisper campaigns, while at the same time finding that they can totally cost cuts by reducing work place safety. Company A retaliates through their own combination of cutting costs and marketing, and meanwhile the quality of Food is going down this whole time.
Consumers, fed up with the lying bullshit being fed to them, as well as the actual bullshit that both companies now include in Food to make it cheaper, decide they're going to form a consumer coalition that looks into the production of Food done by both companies as well as how they treat their workers. Of course, there's the trouble of financing this coalition, and at first it's done by whoever has signed up for this group, but as the group grows in size, and the information it produces starts leaking out to everyone anyways, people find they can still benefit without paying their dues.
At this point, the consumers have a regulatory body without any funding, so the next step is pretty natural. Everyone pays their share for this coalition, or they face the wrath of an angry mob. And now we have a de-facto government complete with taxes and an army (in this case a lynch mob).
Society and people crave a certain amount of order within their lives. It's a good that everyone is willing to pay for, as evidenced by the fact that we do. It is similar to a rugby game. Sure, it can be played without a ref, but there's a certain point where it gets so messy with players policing themselves that a ref is decided upon and all defer to his decisions, even when they might be wrong, because slightly unfair play is better than anarchic play.
As a corollary, when the ref sucks and everyone on the field agrees (or even just a significant number agrees), we get rid of the ref and replace him. Same should be so with government, hence the attraction(though not always the result) of democracy.
When the play gets messy, the field selects a ref. When trade gets messy, the market creates a government.
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