Mises Wire

A More Sane Alternative to Government Prisons

Rape, violence, and drugs are ubiquitous in prisons, so it is not surprising that recidivists commit a hugely disproportionate share of crime. Government prisons and so-called private prisons have no incentive to rehabilitate prisoners or improve prison conditions because taxes are their source of revenue, which is guaranteed regardless of performance.

Lawmaking, law enforcement, courts, and prisons are inextricably linked within a coercive government monopoly. As long as this monopoly remains, it is difficult to imagine a substantial performance improvement. In contrast, repealing the monopoly would expose all of these functions to the competitive marketplace, and history can be our guide.

The Marketplace

Historian Carroll Quigley wrote:

“… there was clearly a period, about 900 [AD], when there was no empire, no state, and no public authority in the West. The state disappeared, yet society continued.”

“It was discovered that economic life, religious life, law, and private property can all exist and function effectively without a state. … In Rome, in Byzantium, and in Russia, law was regarded as an enactment of a supreme power. In the West, when no supreme power existed, it was discovered that law still existed as the body of rules which govern social life. Thus law was found by observation in the West, not enacted by autocracy as in the East. This meant that authority was established by law and under the law in the West, while authority was established by power and above the law in the East.”

Think of laws made by the State as being “top-down law-making,” or “authoritarian law.” Think of laws made by the people themselves as being “bottom-up law-making,” or “customary law” (law established in recognition of evolving customs). Under customary law, when an offense was committed, victim restitution, not imprisonment, was expected. The offender must compensate his victim.1 Furthermore, it was unlawful to assault or kill an offender who had not been given sufficient opportunity to compensate his victim.

Customary law prevailed in Ireland for centuries. Murray Rothbard wrote, “Preconquest Ireland was not in any sense a “primitive” society: it was a highly complex society that was, for centuries, the most advanced, most scholarly, and most civilized in all of Western Europe.”

Anglo-Saxons formed legal institutions called hundreds. Each hundred consisted of about one hundred individuals or households. Membership in a hundred was voluntary, but there were strong incentives to join. When someone inflicted harm on another person or the property (e.g., theft) of another person, the other members of the victim’s hundred were obligated to assist in the pursuit and prosecution of the accused. A member who did not honor his obligations would be expelled from the hundred, and his tainted reputation may prevent him from being accepted into another hundred. He becomes an outcast, lacking the benefits of a protection association.

Arbitration was used when an offender and victim could not agree on an appropriate level of restitution. Arbitrators’ rulings were not binding. However, an offender who refused to submit to arbitration or did not accept the arbitrator’s decision would be socially ostracized and legally subjected to physical retribution (even death) by the community.

Internalizing Costs and Benefits

Bruce Benson wrote,

“… voluntary recognition of laws and participation in their enforcement is likely to arise only when substantial benefits from doing so can be internalized by each individual.” (emphasis added)

This is a crucial point. The cost of law enforcement — providing aid to other members when needed — was borne by each member of a hundred. Likewise, the benefit of law enforcement — receiving aid (leading to restitution) from other members when needed — accrued to each member. In other words, each member internalizes the benefit and the cost, thus creating an incentive for law enforcement.

This stands in stark contrast to our system of authoritarian law where restitution for victims is almost non-existent,2 and a majority of offenses are not even reported to the police because the police and courts fail to solve most crimes. Thus, police, court, and prison bureaucracies internalize the benefit (tax revenue), but not the cost (actual crime-solving, rehabilitation). And citizens are forced to internalize the cost (taxes) without the benefit (restitution).

Notice the difference between ‘victim justice’ and ‘criminal punishment.’ Victim justice requires offenders to compensate their victims. Criminal punishment requires taxpayers, including victims, to provide financial support for prisoners, as well as for ineffective police, court, and prison bureaucracies.

Furthermore, in contrast to the government’s inability to solve most crimes, ‘victim justice’ under customary law actually serves as a disincentive for individuals to commit offenses in the first place: “If I kill, rape or steal, I know for certain that a protection agency will be hot on my trail.”

Private Prisons and Restitution

In a modern free society, private law enforcement would not be the direct responsibility of each individual, as it was with the Anglo-Saxon hundreds. And, when everyone internalizes the cost (hiring enforcement agencies) and benefit (restitution) of law enforcement, we would likely restrict our costs to the formulation and enforcement of laws where victims are easily identified, such as murder, rape, assault, and theft. In other words, every crime needs a victim. Thus, a significant portion of the current prison population would instead be engaged in productive economic activities.

Notably, prisons appeared in the late Anglo-Saxon period to serve one specific function: “Prisons, or gaols, were used on a small scale as early as the tenth century to detain individuals accused of an offense but awaiting trial. But the Anglo-Saxons did not consider prison to be an appropriate punishment. It would force the offender to be idle, making it difficult for him to pay his restitution, and it would be costly to the community.”

However, let us assume there are always a few offenders who are too dangerous to be let loose in the community. Similar to Robert Murphy’s idea, we can imagine these offenders paying restitution through employment within the confines of a private prison.

Private Prisons — A Thought Experiment

In a free society, many companies would seize the opportunity to set up shop within prisons to take advantage of a labor pool in a fixed location. And, in contrast to today’s prisons, prisoners’ wages would likely match the wages of non-prisoners with similar qualifications. In an unhampered market, any company offering below-market-wages would be outbid by other companies.

In fact, a prisoner’s gross income might be higher than that of his equally qualified, but free counterpart, because (a) he might be more productive because he is not subjected to the time and stress of commuting to and from work, and (b) a prisoner who is not dangerous, but considered a flight risk, and whose release is conditional only on fully-paid-restitution may be incented to produce more, a powerful incentive unfamiliar to his free counterpart.

A prisoner’s income might be allocated as follows:

25% to the prison (prisoners — not taxpayers — pay the cost of their incarceration)

25% to the prisoner to incentivize him to work

50% to victim restitution

If a dangerous offender is permanently confined, but manages to make full restitution, he would retain 75% of his income.

Some restitution payments might be made to insurance companies who would have already compensated insured victims.

Market competition will ensure favorable living conditions and employment opportunities, especially if prisoners can choose their prison.

Prisoners wishing to improve their skills through education and training to increase their wages will have the opportunity to do so. This will be facilitated either through the employer or the prison company because it will increase profits.

Prisoners refusing to work (while able) will be isolated, fed a minimal diet, and reminded of the plight of their victims. There will be no risk of starvation, but constant hunger and isolation are powerful motivators. They must earn their keep and pay their debts.

A safe, peaceful community increases productivity, so private prisons will be highly incentivized to prevent all forms of violence, including rape.

Drugs prescribed for the treatment of genuine health conditions will be allowed, but private prisons would have an economic incentive to prohibit the use of recreational drugs that might reduce productivity or cause premature death (i.e., death that occurs before restitution is fully paid). Arguably, most drug-addicted prisoners would earn substandard wages, thereby lowering the prison’s revenue and profits. Notice the mutual benefit: the prison’s quest for profit is the cause which has the effect of improving the health of prisoners by removing from their lives the harmful effects of drugs, thus allowing them to become more productive workers. Upon release, some prisoners will resume their drug habit, but many others will not. The percentage of ex-prisoners who stay clean is likely to be much higher than the ex-prisoners of drug-infested government prisons.


Appalling prison conditions are a consequence of their funding model — coercive taxation. Guaranteed revenue discourages rehabilitation and the provision of a safe, healthy environment. Effective rehabilitation would result in much lower rates of recidivism, thereby triggering massive cuts to government prison budgets, not to mention the police and court budgets. But politicians and bureaucrats always want more power,3 not less, so maybe it is no accident that prisons are full of rape, violence, and drugs.

Without coercive taxation, productive prisoners are the only source of revenue and profits for private prison companies. This incentivizes prison owners to treat prisoners well and create conditions such as those outlined in the above thought experiment.

Consider this question: When incarceration is necessary, which prison system is preferable:

(a) a system of rape, violence, drugs, and high rates of recidivism, or

(b) a drug-free system of discipline, accountability, restitution, skill development, competitive wages, peaceful working conditions, and low rates of recidivism.4

  • 1According to Bruce Benson, “… Anglo-Saxon laws … delineate the economic payment appropriate for homicide, various kinds of wounds, rape, and indecent assaults. Similarly, theft was extensively treated in the codes.”
  • 2When restitution does happen, Martin E. Price, J.D. says that restitution contracts facilitated through non-government mediation programs have a much higher compliance rate than restitution orders issued by a government court. “The reason for this huge difference in compliance is probably that offenders who make an agreement for restitution feel like it is their agreement. Restitution orders handed down by a court are commonly perceived as more of a punishment than a moral obligation.”
  • 3As Bruce Benson wrote, “The fact that government law has taken over as much as it has is not a reflection of the superior efficiency of representative government in making or enforcing law that facilitates interaction. It is, rather, a reflection of government’s general purpose of transferring wealth to those with political power.”
  • 4Martin E. Price, J.D. says “… evidence … suggests that offenders who mediate with their victims are dramatically less likely to return to crime than comparable offenders who have been dealt with in the usual ways. VORPs [Victim Offender Reconciliation Programs] throughout the U.S. report recidivism rates of under 10% for offenders who have been through their programs, as compared to the typical recidivism rates of from 50-85%.”
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