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I'll be generous and ignore oversight as an issue
Ethics of liberty addresses this issue, and provides a much more satisfactory solution than the present day status quo. After all, what happens today if police abuse their authority and kill an innocent person? Absolutely nothing. Police, under the present system, enjoy selective immunity, so long as they are working under the capacity of a law enforcement officer. The Rothbardian system's solultion to oversight is simple. If a policeman, or an individual acting in a police capacity (as individuals are allowed to do under the Rothbardian system) does something which would otherwise be considered a crime, they are subject to the legal penalties for such. So if a policeman kills an innocent person, they would simply be charged with murder. By holding police to the same standards of liability as ordinary citizens you have a powerful check against police abuses which is not present in our modern system.
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But still, if the police operates without without monopoly, then you can end up with competing police forces under different contract
But is this a bug, or a feature? If police force A is corrupt, abusive, and/or lazy, and police force B is judicuous, respectful, and active, then people can choose to fund police force B and withdraw their financial support for police force A. Competition in the market place helps us get ever more powerful computer processors and more efficient cars, why not allow the market place to ensure that we have better and more respectful police forces?
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And for arbitration, you'd still have to agree to arbitration. How do you arbitrate if one party does not consent? Do you force them to the arbitration? How?
All of these questions are addressed in Ethics of Liberty. Essentially, the Rothbardian system sees the merging of "civil" and "criminal" law. One does not need a criminal's consent to bring them to justice. Take the case of a rapist. They can be captured, arrested, tried and if found guilty punished. But the check on police abuse is still present, so if someone is thought to be a rapist is arrested, but it turns out they are innocent, then the capturer is guilty of kidnapping and false imprisonment.