How Unfettered Markets Work

There is virtually no state with unrestricted economic activity nowadays since all countries throughout the globe have chosen regulated economies. But empirical data about how untrammelled markets would work exists nonetheless.
Behavioural economics experiments are among the attempts to distinguish the real preferences of a rational individual. For instance, the widely known prisoner’s dilemma – the participants of the experiment choose to betray each other or dear hunting – instead of cooperating and catching the deer, participants act individually and do with a hare. Seemingly, this prompts a conclusion that if only opportunities occur, rational and self-maximising individuals choose to betray each other when taking economic decisions, notwithstanding that mutual cooperation would bring more benefits to them. Surely, in such a paradigm, the presence of the coercive apparatus of the state is not just justified but is also desirable.
However, those quoting the said experiments (the prisoner’s dilemma in particular) often disremember that when the experiment is repeated players begin to cooperate with each other as they learn that mutual cooperation is more advantageous than deception because deception can succeed only once. Equally the same, sellers seeking that their clients returned again act honestly. And vice versa, the highest degree of unfairness occurs in selling miracle water or shares of financial pyramid schemes because sellers, using conspicuous fraud, do not intend to sell their products to the same customer twice. So honest deals and complying with the contract are, essentially, a simple business condition, rather than the merit of the central government; lost confidence and abilities to enter into contracts in the future are far more fearsome than penalties administered by some official institution.
As MMORPGs (Massive Multiplayer Online Role Playing Game), a new form of computer games, are getting increasingly popular, entire communities are created in the virtual world and their processes are vastly similar to those of the real world. Indeed, while observing how relationships between sellers and buyers unfold, how the market price sets in or how epidemic spreads, it may be speculated that such type of games are a true grand-scale experiment of libertarism (Michael Gerson, Where Avatars Roam, Washington Post, July 6, 2007, Some authors think this illustrates that unrestricted freedom engenders violence and non-productive activity and is the proof of  libertarism’s undesirability.
But the essential difference between the real and the virtual living is the gravity of the consequences of one’s actions. Destructively behaving players become targets of other players, other players don’t trust them, etc. However, the “consequences” of misbehaviour in the virtual word cannot be tantamount to the consequences in the real world for this one reason alone – the “consequences” of the virtual world are virtual, i.e. not real. Besides, the great majority of people in both the virtual and real world act socially and productively not just because they fear punishment or central government, but also because they desire to be part of society, not outside it.
When the apparatus of the state collapses, even in the real world we may observe how markets and relationships come into play (and even better play) without the intervention of the central government, e.g. in Somalia where in the previous 15 years development indicators improved more significantly compared to the country’s years under government (data from UNDP – Peter T. Leeson, Better Off Stateless, Black or illegal markets operate effectively and even create voluntary rules that reduce the costs of contract – this is one more example of individuals’ capacity to cooperate without the intervention of the central government.
In the issue, the reduction of government would not translate into a chaos or a human jungle. Sustaining the consequences of their own actions, people act socially and productively because they were able to cooperate and create commodities long before institutions of central government evolved – the latter undeservedly make a merit of the fruits of mutual cooperation among people. And, conversely, the individual starts to behave irresponsibly and socially detrimentally namely when he/she is isolated from the consequences of his/her actions.