TL;DR
- Libertarianism is not about the absence of rules. Rules are what make cooperation, commerce, and community possible. Games teach us this: a game with no rules is not freedom, it is chaos without fun.
- The question is not whether rules should exist, but how they are produced, who enforces them, and how they can evolve. State rules are produced through political processes that favor incumbents, are rigid and hard to change, and require force to enforce. Non-state rules emerge from competition, consent, and reputation, and can adapt far faster to new circumstances.
- Insurance, certification, professional associations, market exclusion, consumer choice, and voluntary community standards all regulate behavior effectively without a legislator or a badge. The institutional diversity of non-state regulation is one of its greatest strengths: it creates a competitive market for rules.
Start with a game.
Uno takes about two minutes to learn. The rules fit on a card. You draw, you play, you match color or number, you call “Uno” when you have one card left. That is most of it. Because the rules are simple, almost anyone is willing to sit down and play. Because the rules are simple, it is hard to cheat without being caught immediately by everyone at the table. Because the rules are simple, disputes are rare and resolved in seconds. No referee is needed. The game runs on mutual understanding.
Now consider Dungeons and Dragons. The core rulebooks run to hundreds of pages. Character creation alone involves dozens of choices. Combat adjudication can require looking up tables, cross-referencing ability modifiers, and resolving ambiguities about whether a specific spell interacts in a particular way with a specific class feature. The rules are rich and the possibilities they create are vast, but the game has a much higher barrier to entry: you need experienced players to teach newcomers, you almost certainly need a Dungeon Master to adjudicate disputes, and people who know the rules more deeply than others can exploit that knowledge in ways that disadvantage the less experienced.
Or consider Magic: The Gathering, a collectible card game with a rules document that runs to more than 250 pages. The game has a robust professional judging system, a formal rules appeals process, and regular rules updates as new cards create new interactions that the existing rules cannot cleanly handle. Players who understand edge cases in the rules can gain significant advantage over those who do not. The game is extraordinarily rich and has a devoted community, but it requires substantial infrastructure to run fairly.
None of this means Dungeons and Dragons or Magic are bad. It means that rule complexity is not free, and that the costs of complexity (barriers to participation, opportunities for exploitation by those who know the rules better, greater need for adjudication) scale with how complex the rules are.
This is the analogy at the heart of the libertarian case for simpler government rules. Rules are necessary. The question is how complex they should be, who should set them, and how they should evolve when circumstances change.
Why Rules Matter and Where They Come From
The libertarian who says “I want fewer regulations” is often heard as saying “I want no rules.” That is a misreading of the argument, and it is worth correcting directly.
Rules are what make cooperation possible. Property rights are rules. Contract law is a set of rules. Traffic lights are rules. The rule that you do not assault people who displease you is one of the oldest and most important rules any society has. Without rules, markets do not function: you cannot exchange value reliably with strangers if you have no shared understanding of what constitutes a valid exchange or what happens when one party defaults. Without rules, communities do not cohere: the norms that allow neighbors to share space, resolve disputes, and build common infrastructure are rules, even when they are unwritten.
The argument is not against rules. The argument is about two distinct questions: where rules come from, and how they can change when they stop working.
Rules can be generated by many different mechanisms. The state is one of them, and in a well-designed system it has an important role. But the state has no monopoly on rule-generation, and the assumption that it does is one of the most consequential errors in modern policy thinking.
Rules are generated by markets: prices are rules that coordinate production and consumption. Rules are generated by contracts: private agreements between parties that define mutual obligations with the specificity that general law cannot achieve. Rules are generated by professional associations: the American Medical Association, the American Bar Association, and their counterparts in every field set standards of practice that govern professional conduct far more specifically than any statute. Rules are generated by certification bodies: Underwriters Laboratories (UL) has been certifying product safety since 1894 without any statutory authority to do so, relying entirely on the fact that manufacturers want the mark and retailers want the assurance it provides. Rules are generated by insurance underwriters: if you want to insure a building, the insurer’s requirements about sprinkler systems, electrical standards, and fire exits will shape your building practices regardless of what the building code says.
Elinor Ostrom won the 2009 Nobel Prize in Economics for demonstrating, across dozens of empirical cases, that communities are capable of generating their own effective rules for managing shared resources without state intervention. Swiss alpine communities have governed shared grazing rights through customary rules for centuries. Irrigation communities in Spain and Nepal manage water allocation through systems developed locally that have proved more adaptive and effective than the centralized alternatives. (Ostrom, Elinor, Governing the Commons: The Evolution of Institutions for Collective Action, Cambridge University Press, 1990.) The point is not that state management is never appropriate. It is that the assumption that it is always necessary is simply wrong, and that the evidence from actually existing non-state governance systems is extensive.
The Specific Mechanisms of Non-State Regulation
Let me walk through the main non-state regulatory mechanisms with enough specificity to show that this is not abstract theory but documented practice.
Insurance. Insurance underwriters were the original private regulators. Underwriters Laboratories was founded in 1894 by William Henry Merrill, an engineer hired by insurance companies after the 1893 World’s Columbian Exposition to investigate electrical fire hazards. Insurers had a direct financial interest in ensuring that the products they were covering were safe. They created UL to test and certify those products, and manufacturers who wanted market access adopted UL standards to obtain the mark. Today UL certification is a practical prerequisite for selling electrical products in the United States, not because the law requires it in most cases, but because retailers and insurers require it as a condition of market participation. This is private regulation working at scale, funded by the market participants who benefit from it, with standards developed by technical experts rather than by legislative staffers.
The broader insurance mechanism works similarly. If you want to insure your restaurant, your insurer will specify hygiene standards, fire suppression requirements, and kitchen equipment specifications. These requirements may be stricter than local code and will certainly be more current, because insurers update their underwriting criteria based on actual loss experience, which is updated continuously, unlike statutes that may sit unchanged for decades. The insurer’s financial interest in loss prevention aligns perfectly with the insured’s interest in not having a fire. The regulatory standard emerges from that alignment without a legislature needing to convene.
Certification bodies. Beyond UL, certification operates across nearly every industry. The American Institute of Certified Public Accountants certifies accountants. The Project Management Institute certifies project managers. The American Board of Medical Specialties certifies physicians in their specialties. Organic certification bodies certify agricultural products. B Corp certification certifies corporate social responsibility practices. Halal and kosher certification bodies certify food products for specific religious communities.
None of these certification bodies have statutory authority. All of them function because the certification mark carries value: it signals to buyers and employers that the certified entity meets a defined standard. The certification body’s value depends on the credibility of that signal, which means it has strong incentives to maintain rigorous standards. A certification body that grants its mark too easily loses the trust of the market it is certifying for, and with it, the value of the certification. This is a self-reinforcing accountability mechanism: the standard-setter is accountable to the market participants who use its signal, without any governmental enforcement.
Market exclusion. eBay does not need a regulator to enforce honest dealing among its sellers. It relies on its feedback and rating system: sellers with poor reputations lose business; sellers with excellent reputations build it. Amazon’s seller rating system, Airbnb’s host and guest reviews, Uber’s driver ratings, and Yelp’s restaurant reviews all function as reputation-based regulatory systems that shape behavior through market consequences rather than legal compulsion. A seller who defrauds buyers on eBay will be removed from the platform and will lose access to its enormous customer base. That is a severe commercial consequence, and it is applied through private contract rather than criminal prosecution.
Professional organizations use exclusion similarly. A lawyer who is disbarred loses the license to practice. A physician whose hospital privileges are revoked cannot practice at that hospital. A contractor who is expelled from a professional trade association loses access to the referral networks, the bonding relationships, and the reputational endorsement that the association provides. These exclusion mechanisms function as private regulatory sanctions that operate faster, more specifically, and with less adversarial overhead than criminal prosecution.
Collective bargaining and unions. Unions are an often-overlooked example of non-state regulation, particularly from a libertarian perspective where they are sometimes treated with suspicion. But a union contract is exactly what the libertarian framework should appreciate: a private negotiated agreement between workers and employers that defines wages, conditions, hours, grievance procedures, and safety standards. The standards that emerge from collective bargaining often exceed statutory minimums, are more specific to the actual conditions of the workplace, and are more adaptive to changing circumstances than legislation. The union represents a voluntary cooperative of workers exercising market power rather than seeking state mandate.
The libertarian concern about unions is usually about coercion: the argument that closed shop agreements force workers to join unions against their will, and that mandatory union dues compel political speech. Those are legitimate concerns about specific union practices. They are not concerns about the concept of workers organizing to negotiate collectively, which is simply voluntary association exercised for economic purposes.
Consumer behavior and reputation. The most diffuse and perhaps most powerful form of non-state regulation is consumer behavior itself. Companies that produce unsafe products, that treat workers poorly, that engage in deceptive marketing, or that fail to deliver on their promises face market consequences: boycotts, negative reviews, declining sales, reputational damage that spreads through social networks faster than any regulatory investigation could operate. This does not mean that consumer pressure is sufficient for every regulatory purpose. It means it is a real and substantial force that belongs in any honest accounting of how behavior is shaped.
The research literature on corporate social responsibility finds that companies face significant market and financial incentives to maintain reputational standards beyond what regulation requires, because their customers, investors, employees, and business partners care about those standards. The ESG investment movement, whatever its limitations, represents a mechanism by which capital markets apply non-state pressure on corporate behavior. The labor market for skilled workers creates similar pressure: companies that treat employees badly have difficulty attracting and retaining the talent they need.
The Failure Modes of State Regulation
Non-state regulation has its own failure modes, and the honest libertarian acknowledges them. Certification bodies can be captured by incumbents who use credentialing requirements to block competition. Insurance underwriting can systematically exclude vulnerable populations. Market exclusion mechanisms can become monopolistic gatekeeping. Consumer pressure can fail when harms are invisible, diffuse, or affect people who lack market power. These are real limitations that in specific cases justify state intervention.
But state regulation has its own failure modes that receive far less analytical attention.
Regulatory capture. When an industry is regulated by a specific agency, the people most motivated to influence that agency are the people it regulates. Over time, agencies tend to develop relationships with the industries they oversee that tilt regulatory decisions toward incumbent interests. The result is often regulation that makes incumbents more profitable and reduces competition from new entrants, rather than protecting the public interest it was supposedly designed to serve. The revolving door between industry and regulator is a symptom of this dynamic: regulatory expertise is valuable, and the people who develop it move back and forth between the industry and the agency, carrying their networks and their frameworks with them.
Rigidity. Legislation is extremely difficult to change. A statute that was written in 1970 to address a problem that existed in 1970 may still be on the books in 2026, addressing a problem that no longer exists in the same form while failing to address problems that have emerged since. The pace of statutory change is set by the legislative calendar, the political will for reform, and the lobbying power of those who benefit from the existing rule. That is not a fast or flexible system. Markets, contracts, and reputational systems can all adapt to new information rapidly. Statutes adapt very slowly if at all.
Compliance complexity as competitive advantage. Complex regulations favor large incumbents who can afford compliance departments, legal teams, and government affairs offices. Small businesses and new entrants face the same regulatory burden with fewer resources to manage it. The result is that heavy regulation often serves as a barrier to competition that protects established players from challengers. This is not a conspiracy: it is the natural consequence of applying uniform compliance requirements to entities of vastly different sizes.
Enforcement inequality. Rules that are not clearly legible to everyone subject to them are enforced unequally, and the inequality almost always favors the powerful. Enforcement discretion, exercised by overworked agencies with limited resources, tends to fall on those who are least able to defend themselves. A complex regulatory code is a code that will be enforced differently depending on who you are and who you know.
The Uno analogy applies here with precision. A simple clear rule is one that everyone can see when it has been violated. A rule you cannot understand is a rule you cannot follow confidently, and a rule you cannot follow confidently is one that gives enforcement authority unlimited discretion about when to act. The complexity of American tax law, immigration law, professional licensing regimes, and environmental regulations does not primarily serve the public interest. It primarily creates opportunities for regulatory arbitrage, barriers to entry for outsiders, and ammunition for selective enforcement.
Where State Rules Belong: The Principle of Stable Foundations
The argument against complex, rigid, and frequently updated state regulation is not the argument that the state has no regulatory role. It is the argument that the state’s regulatory role should be limited to the specific domain where state regulation has genuine comparative advantage.
State rules have comparative advantage in establishing the stable foundations on which all other rule systems rest. Property rights must be defined and enforced. Contracts must be backed by a legal system that can adjudicate disputes and enforce judgments. Basic physical harm to persons must be prohibited and remedied. These are the rules that do not need constant adaptation because they address needs that are constant: the need for people to know that what they own is theirs, that their agreements will be honored, and that they cannot be freely harmed by others.
Beyond these foundations, the question of whether a specific rule should be set by the state or by non-state mechanisms is an empirical question about which system is likely to produce better outcomes for the people the rule is supposed to serve. The answer is not always “state” and it is not always “market.” It depends on the specific problem, the specific context, and the specific institutional capacities available.
What the Uno analogy suggests is a principle for thinking about the state rules that do exist: they should be simple enough that everyone who is subject to them can understand them, follow them, and recognize when someone else is violating them. A rule that most people cannot follow most of the time without specialist assistance is not a well-designed rule. It is a rule that creates dependency on specialists, gives specialists power over those who depend on them, and generates enforcement outcomes that reflect the distribution of specialist access rather than the underlying conduct the rule was supposed to govern.
The Internal Revenue Code of the United States runs to more than 6,000 pages. The Code of Federal Regulations, which contains the regulatory rules issued under statutory authority, runs to more than 100,000 pages. This is not a system that most Americans can navigate without professional assistance. That inaccessibility is a form of inequality: it distributes the costs and benefits of compliance based on the ability to hire lawyers and accountants, not on the underlying behavior the rules were designed to govern.
Simpler rules, clearly written, narrowly targeted at the genuine harm they are designed to address, with transparent enforcement and clear remedies, are not only more just. They are more effective, because they generate compliance that is voluntary and understood rather than compliance that is forced and performed.
The Competitive Market for Rules
The deeper libertarian argument about regulation is that non-state rule systems constitute a competitive market for rules, and like other competitive markets, this competition produces better outcomes than monopoly.
When there is only one rule-setter, the state, the rules that emerge from the political process reflect the balance of political power at the time they were written, the lobbying investments of organized interests, and the cognitive limitations of legislators who are not experts in the domains they are regulating. There is no feedback loop: a bad rule is not replaced by a better one when it fails, because failure does not automatically displace the rule. Only political action can change it, and political action is expensive and uncertain.
When there are multiple competing rule systems, the feedback loop operates differently. A certification body whose standards are too lax will find that its mark loses value in the market as buyers stop trusting it. A certification body whose standards are too strict will find that producers cannot meet them and stop seeking the certification. An insurance underwriting standard that is miscalibrated will show up in loss ratios and be corrected when the next underwriting cycle comes around. A professional association that imposes unreasonably burdensome requirements will lose members to competing associations or to the unassociated market. These correction mechanisms operate continuously and without requiring legislative action.
This does not mean the market for rules is perfect or that it always produces good outcomes. It means that the institutional diversity of competing non-state rule systems has a built-in adaptive capacity that state monopoly rule-making lacks. The goal of a sensible regulatory philosophy is to use state rules where they are genuinely necessary while preserving and developing the institutional landscape in which non-state rule systems can function, compete, and evolve.
Libertarianism and Rules: A Clarification
It is worth ending with the clarification the opening promised: libertarianism is not a philosophy of rulelessness. It is a philosophy about how rules should be produced, who should produce them, and how they should evolve.
The libertarian trusts voluntary association, contract, reputation, and market competition to produce better rules in most domains than political processes do, not because markets are morally superior, but because the feedback mechanisms that discipline market rule-makers are stronger and faster than the feedback mechanisms that discipline legislatures. The libertarian is skeptical of state monopoly on rule-making not because rules are bad but because monopolies, including monopolies on rule production, tend toward rigidity, capture, and inefficiency over time.
The game analogy is illuminating precisely because games make explicit what is implicit in social life: everyone needs to agree to play by the rules, and the rules that generate the most willing participation, the most honest play, and the most fun are usually the simpler ones that everyone can understand and apply. The most beloved games in human history are not necessarily the most complex. They are the ones that strike the right balance: enough rules to make the game coherent and fair, not so many that the game becomes inaccessible or exploitable.
A libertarian society would still have rules. It would have property rights, contracts, prohibitions on fraud and violence, and the full array of non-state regulatory institutions that free people voluntarily build when they want to cooperate. What it would not have is the assumption that every social problem requires a legislative solution, every standard requires a statutory mandate, and every rule requires a badge to enforce it.
Rules matter. The question is whether they emerge from consent or compulsion, from competition or monopoly, from adaptation or ossification. The answer to that question shapes what kind of society we build and whether the rules we live under serve the people they govern or merely the interests that were powerful enough to write them.
Go Deeper: Books by Alex Merced
The argument in this article draws on institutional economics, public choice theory, and political philosophy. Alex Merced’s books develop the intellectual foundations of each pillar.
Economic Ideas: From Beginning to Early 2026 covers the economic theory of regulation in depth. Public choice economics, which explains why state regulatory agencies tend to serve regulated industries rather than the public, the economics of certification and signaling, and the Ostromian framework for thinking about non-state governance of shared resources are all economic ideas with long intellectual histories that this book traces from their origins to their current applications.
The Field Guide to Libertarianism builds the political philosophy that frames the argument. The distinction between rules produced through consent and rules produced through compulsion, the case for polycentric governance over state monopoly rule-making, and the libertarian understanding of regulatory complexity as a form of incumbency protection are all developed in the guide as practical political arguments rather than abstract philosophy.
Political Thought and Debates of the United States situates the regulatory debate in American political history. The Progressive Era creation of the administrative state, the New Deal expansion of federal regulatory authority, the public choice critique of that expansion developed by the Chicago School in the 1970s and 1980s, and the ongoing American debate about where private ordering ends and state mandate begins are all threads in American political thought that this book traces through to the present.
All three are available on Amazon. The full catalog of Alex Merced’s work is at books.alexmerced.com.
Sources and Further Reading
-
Ostrom, Elinor. Governing the Commons: The Evolution of Institutions for Collective Action. Cambridge University Press, 1990.
-
Underwriters Laboratories. “History of UL.” ul.com, corporate history documentation.
-
Stigler, George J. “The Theory of Economic Regulation.” Bell Journal of Economics and Management Science 2, no. 1 (1971): 3-21. (The foundational paper on regulatory capture.)
-
Buchanan, James M., and Gordon Tullock. The Calculus of Consent: Logical Foundations of Constitutional Democracy. University of Michigan Press, 1962. (The foundational public choice critique of political rule-making.)
-
Coase, Ronald H. “The Problem of Social Cost.” Journal of Law and Economics 3 (1960): 1-44. (The foundational argument for private ordering in externality cases.)
-
Epstein, Richard A. Simple Rules for a Complex World. Harvard University Press, 1995. (The definitive case for reducing state rules to simple, stable principles.)
-
Hayek, F.A. “The Use of Knowledge in Society.” American Economic Review 35, no. 4 (1945): 519-530. (The foundational argument for why decentralized rule systems outperform centralized ones in information processing.)
-
Hong, Lu, and Scott E. Page. “Groups of Diverse Problem Solvers Can Outperform Groups of High-Ability Problem Solvers.” Proceedings of the National Academy of Sciences 101, no. 46 (2004): 16385-16389.
-
Office of the Federal Register. “Code of Federal Regulations: Number of Pages.” govinfo.gov, updated annually.
-
Tax Policy Center. “A Brief History of the Tax Code.” taxpolicycenter.org, updated 2023.
-
Florida, Richard. The Rise of the Creative Class. Basic Books, 2002. (Documents how institutional openness and diversity correlate with innovation and economic growth.)
-
Scholz, John T., and Wayne B. Gray. “Can Government Facilitate Cooperation? An Informational Model of OSHA Enforcement.” American Journal of Political Science 41, no. 3 (1997): 693-717.
-
Berger, Peter L., and Richard John Neuhaus. To Empower People: The Role of Mediating Structures in Public Policy. American Enterprise Institute, 1977. (The foundational argument for preserving non-state institutions between the individual and the state.)