BEFORE THE GOLD RUSH began, San Francisco was a sleepy settlement with only about a dozen homes. By 1849, the town's population had expanded to 5,000; by 1850, it was 20,000. Tens of thousands more passed through. The little village had become a bustling city, with hundreds of ships in the harbor bringing people looking to get rich. They came from all over America, and then from Australia, Chile, China, England, Germany, Mexico, Peru, and the islands now known as Hawaii. Eighty percent were single males.
Yet in its early days San Francisco had no police department. As one visitor from Scodand, James Hogg, wrote in 1850, there were "no police or soldiers to watch specially over the interests of the public. Such a state of things will give rise at the first moment to a sentiment of surprise, almost indignation; nobody could imagine that a government could be so wanting in its essential duties as to not accord direct and official protection to a country ranged under its banner, but many things which the European can scarcely conceive appear natural and simple to the Americans."
Crime started escalating. Criminal groups with names like the Hounds, the Regulators, and the Sydney Ducks ("composed chiefly of Sydney convicts," the 19th-century historian Hubert Bancroft explained) terrorized the city. The 1854 Annals of San Francisco, written by Frank Soule, John Gihon, and James Nisbet, describes the gangs throughout San Francisco in 1849: "They invaded the stores, taverns, and houses of Americans themselves, and rudely demanded whatever they desired. They could not be refused, for their numbers were so great, while they were well armed, that nobody durst resist them." The city incorporated in 1850, and a police department was created in August. But the force was small, and it was generally considered corrupt and ill-equipped to deal with the crime.
So San Franciscans created a private security system instead. These private police protected individual establishments, and sometimes entire neighborhoods, without taxation or official sanction. By 1851, Soule, Gihon, and Nisbet wrote, people "could now lie down to rest at nights without feeling the old constant dread of having their houses robbed or burned before morning." In 1853, the German traveler Friedrich Ger-stacker wrote that "perfect peace and security exist now in San Francisco."
As the city government grew, the private alternative stuck around. By 1916, San Francisco had 985 government cops--and 1,199 private police, by then referred to as Special Police Officers. Today the network of independent firms, now known as the San Francisco Patrol Special Police, still provides such services as helping merchants escort unruly patrons or vagrants off their property. Unlike security guards, the Patrol Special Police wear badges, are armed, and can protect multiple properties.
Mainstream economists argue that policing is a public good where charging people is impossible. They claim the peaceful law and order that policing provides is non-excludable, that people who do not pay still get to use the product. But in practice, police services are often bundled with real estate, where access is excludable and the bundle has a single price. Whether the "public" good is unarmed security or full-fledged private police, the principles are the same. A shopping center does not charge separately for its security guards--or fountains, sidewalks, and streetlights--and instead prices these collective goods into merchant rents, which are ultimately priced into consumer products. A shopping center does not need to negotiate with each customer for each of these separate amenities, and it eliminates free riding by indirectly charging all customers for these collective goods. Similarly, in 1850s San Francisco, private police did not need to go into the bar and negotiate with individual patrons for protection against criminals. The free-riding problem was overcome by bar owners pricing private policing into the cost of drinks.
Good security is an important aspect of property management, and that can come from everything from white-gloved doormen to fully deputized private police. Customers of retail stores, office parks, hotels, casinos, colleges, and housing complexes all demand a good experience, and if proprietors want shoppers, tenants, guests, gamblers, students, or residents, they must provide the bundle of private and "public" goods that their particular customers want. That includes policing....