"What is really at stake in the argument over the moral foundations of the market, and therefore minimum wage laws, is what rights people have, how much weight they have, and what the proper aims of government are. It is at best misleading to disguise discussion about these issues as a debate about the proper understanding of the notion of coercion."
-- Liam Murphy
For libertarians, one moral trump card against government is that government action is coercive. In the private sector, individuals deal with one with one another voluntarily. When you deal with government, ultimately government holds a gun to your head.
I disagree with libertarians on this point. I believe that there are significant differences between government action and private contracts, but I believe that it is incorrect to say that a key difference is that government is backed by force and private contracts are not.
Even in a libertarian society, contracts must be enforced and disputes must be resolved. Ultimately, government will have a Golden Scepter with which to settle disputes.
Below, I will use a few examples to illustrate the point that coercion is implicit in private-sector behavior. Then, I will articulate in a different way the moral intution that government power is more dangerous to freedom than private contracting.
The Rude Smoker
Suppose that in community Libertopia, in response to customer preferences, all of the better restaurants ban smoking. In nearby community Paternafascista, there is a law that bans smoking in restaurants.
Consider a rude smoker who decides to go to one of the better restaurants and light up. In Paternafascista, if the smoker is really obstinate about smoking in the restaurant, he may be forcibly removed from the restaurant by the police.
In Libertopia, smoking is banned by policy rather than by law. Suppose that the rude smoker goes into one of the better restaurants and lights up. The owner of the restaurant comes over and points to the no-smoking policy. The smoker says, "I don't care. I have every right to smoke." The restaurant owner insists that the restaurant is his property. Furthermore, by coming to the restaurant, customers have implicitly agreed not to smoke. The smoker says that he never agreed to any such thing. The restaurant owner calls for his bouncer. The smoker calls for his bodyguard. Fearing violence, the restaurant owner calls the police, who forcibly remove the smoker from the restaurant.
In both Libertopia and Paterfascista, smokers are not able to smoke in the better restaurants. If someone insists on trying to smoke, he may end up forcibly removed by the police.
The Jim Crow Bus Company
In Libertopia, the Jim Crow Bus Company has a "whites-only" policy for the front half of the bus. If non-whites try to sit in the front half of the bus, the bus driver will make them move. If they refuse, the bus driver will call the police, who will enforce the property rights of the bus company.
In Paternafascista, there is a law that says that non-whites must sit in the back of the bus. If they refuse, the bus driver will call the police, who will enforce the law.
To non-whites boarding a Jim Crow bus, Libertopia and Paternafascista look the same. If they try to sit near the front of a bus operated by Jim Crow, ultimately they may be forcibly removed from the bus by the police.
The Minimum Wage Pledge
In Libertopia, a landlord believes strongly in the minimum wage. Before he will rent to you, he makes you sign a pledge saying that you will not accept a job below the minimum wage. If you violate that pledge, he will evict you. If you do not comply with your eviction, he will call the police.
In Paternafascista, there is a minimum wage law. If you accept a job below the minimum wage, and the government finds out about it, your employer will be punished by the government.
In either community, you will not be able to work below the minimum wage and stay in your apartment. In either community, government will be the ultimate enforcer. (I admit, though, that I had to stretch pretty hard to come up with a way to enact the minimum wage privately.)
The Real Case for Limited Government
In my view, the reason that government laws are more offensive than private agreements is that the jurisdiction of private individuals is limited. A restaurant owner may only enforce a smoking ban for his restaurant. If a competing restaurant wants to allow smoking, it can. A private bus company can only have a racist seating policy on its buses. A competing bus companies can offer open seating to all races. A minimum-wage advocating landlord can only reject tenants for his property. A competing landlord could choose to rent to tenants who accept jobs below the minimum wage.
When two business firms sign a contract, one of the stipulations of the contract may be that any dispute will be settled according to the laws and courts of a particular state. The two companies bind themselves to accepting a particular jurisdiction.
When I choose to live in a particular community, I obligate myself to obey the laws of that community. The fact that I do not like many of those laws is the price that I pay for living in that community.
The wider the jurisdiction of the community, and the greater the intrusiveness of its laws, the more costly it is for individuals to find a set of laws that suits them. I live in a county with many political policies that I find objectionable, because the cost of moving to a more politically congenial location is high.
Government policies take away more liberty than equivalent private policies. The reason is not that government policies are backed by physical force. The reason is that government has broader jurisdiction. With private policies, when I am adversely affected by a policy, I can choose an alternative service provider at relatively low cost. With government, because its jurisdiction is so extensive, the cost to me of escaping adverse policies is much higher. It is not the armed force that makes government feel more like tyranny. It is the absence of competition.
Limited government is a legitimate moral ideal. However, as a libertarian, do not be so quick to claim that government's uniqueness is its ability to achieve compliance using physical force. Non-libertarians are likely to respond to this dogma with a look of incomprehension. And they are right.
The difference between government laws and private agreements is not that only the former are ultimately backed by force. The difference is that the cost of finding an alternative government jurisdiction is typically much higher than the cost of finding another private party to a contract.