David Friedman’s anarcho-capitalism is a bit different to what (I suspect – I’m new) is oft described around here. I’ll give explaining his a go, and give you a link for more reading at the end. In this post all uses of anarcho-capitalism (AC) etc. are used with Friedman’s (DF’s) theories in mind; not Rothbard’s, or whomever.
Your first question. Law in an anarcho-capitalist society would be polycentric law; meaning, different sets of laws can (and are likely to) exist within the same jurisdiction. An admittedly imperfect example of this in today’s US could be that the potential for a murderer to be eligible for capital punishment depends on the location of the crime. Another example can be seen in India, where the legislated family law an individual adheres to depends on whether they are Hindu, Muslim, or Christian. The major difference from these examples and anarcho-capitalist polycentric law would be that instead of having the scope of laws defined geographically or demographically, they are instead defined by individual choice.
In the absence of a state constitution, it would be up to the courts to ‘set’ their own laws. Private protection agencies would sign up to courts in advance, choosing the court with the set of laws that would most appeal to their potential clients. The individual, in deciding which protection agency to purchase the services of, is thus given a choice in the laws they would like to live under.
Conflicts that occur between individuals under the same laws are pretty self-explanatory, so I’ll focus on the problem of what to do in the case of conflicts between customers of different agencies. The polycentric law system is kept stable through agreements (made in advance of any disputes) between protection agencies that have a reasonable chance of coming into contact with each other. If the agencies use different courts, these agreements would involve negotiating a framework for how to deal with their differences in laws. DF’s example for this is for two neighbours who have opposite views on capital punishment, who are signed up to two different agencies: one that is pro-capital punishment for murder, one anti-. If it means more (in terms of keeping/attracting customers) to the pro- agency, they will be willing to make some concessions to the anti- agency in order to get what they want. The pro- agency has to jack up their prices to cover the costs of the concessions they made, while the anti- agency can use the proceeds of the agreement to lower their prices (at the cost of having to comprimise on capital punishment).
All of these agreements are made in advance of any conflicts, so the customers know what they are getting into before they sign up. Customers of the aforementioned anti- agency know that they will find themselves ‘eligible’ for capital punishment if they murder anyone from the pro- agency. If they find that thought appalling, they can take their custom elsewhere: perhaps to another more expensive anti- agency that did not compromise on capital punishment.
As alluded to in my previous post, the competition between the courts will create a drive towards better methods and more efficient laws; presumably similar to the seemingly successful innovations we’ve seen with private dispute resolution (as opposed to the state’s courts) for non-criminal disputes.
Man this post exploded into an essay in no time. I’ll stop it there for the ‘how would it work’ stuff, direct you to the link at the bottom of the post, and offer to have a go at answering any further questions on this part you’ve got.
Your 2nd question(s). I don’t think any society can be expected to deal well with a population of more criminals than honest people – especially a democracy!
Likewise, any method of organising a society is going to have trouble with a community that are racist enough to be willing to pay (more) to create the demand for a court to create (and for protection agencies to enforce) laws that intrude on or deny a minority’s rights. Your example is assuming something well beyond your typical xenophobic racism. Under a democracy, if the racist community is that racist, rich, and powerful, the outlook for the minority isn’t too great in terms of seeing anti-minority laws come into affect in the neighbourhood either. At least under anarcho-capitalism, if moving was out of the question, there is a chance that the minorities could just pay through the teeth for a better protection agency…
The racist judges hypothetical gets the same treatment. Minorities in Africa in particular are facing that exact problem under both democracies and dictatorships, and I’m sure you can think of plenty of other examples of similar minority-oppression elsewhere. You have to remember that any government is made from the people; if you’re going to try to think how an AC society will cope with a demonised population, first think that only the most power-hungry of those demons will be filling the seats in any formation of a government. Anarcho-capitalism isn’t out to change human nature. It’s not claiming to be a utopia; the claim is that it will be better than any current alternative.
Here’s David Friedman’s explanation of laws, courts and protection agencies in his ‘Machinery of Freedom’. If you find my description unsatisfactory, he is far more likely to strike the right note than I. 