[Borodog]

The very first stock market, formed for the trading of shares of the Dutch East India Company, had absolutely no recourse to the Dutch courts to enforce contracts, because the Dutch government viewed the stock market as a form of gambling, and thus immoral and not worthy of government protection of contract.

Nevertheless, even in the complete absence of any enforcement mechanism whatsoever, debts were scrupulously paid, even if the debtor had to sell all his worldly goods and take years to pay off the debts. Anyone who did not want to pay these debts could simply "Appeal to Frederick", and have the debt legally absolved (because the contract was never legal in the first place); but nobody did. The consequences for anyone who did would have been dire indeed, and they came through neither government enforcement nor threat of private violence, but rather purely from economic ostracism. Anyone who did not meet their stock market obligations would be run out of the market as a "lame duck", and no one would extend them "credit" again (not just in the modern sense of credit, but in the original as well, as in "credibility").

The stock market grew and thrived and prospered under this enforcement-free regime for well over 100 years.

Most of the world actually operates on the "honor system". Think of the millions of empty houses across America during the working day. Little prevents burglars from breaking in and looting, and many of course do. But the very fact that this is rare indicates that the vast majority of people would rather spend their time laboring to produce than looting and cheating.

I've given a lot of thought to this topic. I have some other thoughts I think are interesting about con men, the inefficiency of private cheating, and (obviously) institutionalizing cheating (the state).