Robin Hanson is not a libertarian, clearly. And there's nothing explicitly market-based in the current torture proposal we are kicking around. But I classify him as a marketeer because he's supported a variety of market-based solutions (futures markets, health care, etc) in the past. There's nothing at all wrong with that! An undogmatic support for market-based systems is OK with me. Some libertarians make a fetish of the market, and those are the ones I classify as stupid, but Robin is not one of those. He's worked on and promoted some great ideas, and I have enormous respect for that (in fact, I implemented one of the things he has promoted). So it pains me to see him go in a direction that seems so obviously wrong, and doing it by means of frankly stupid arguments.
Nonetheless, I see a link between market-based thinking and the torture proposal. It's this: the idea that human suffering is some kind of tradeable commodity, that one kind can be exchanged for another based on some mythical calculus of pain. The most plausible version of the torture proposal is that we give, for example, a convicted burglar the choice of five years in jail or five weeks of torture. One of the brave writers at Overcoming Bias, who values his time, say of course they'd pick the five weeks "as long as it didn't do permanent physical or psychological damage". There are so many things wrong with this it's hard to know where to start. For one thing, until you have actually been tortured you have no way of knowing how much disutility it's worth to you. For another of course torture leaves permanent damage! The underlying assumption is that torture is like some kind of scary rollercoaster ride at Great America -- disturbing for a while, but then it's over. Try reading about actual torture victims sometime. For another, the the damage caused by torture is not limited to the victim, but includes a pervasive corruption of the entire social order.
So this proposal is entirely disconnected from reality and doesn't even work well on the abstract level. What's going wrong with people's thinking? I believe that the underlying bug is a tendency towards overabstraction. The essence of markets, and market-based thinking, is abstraction. From the overwhelming complexity of the world, we distill everything into a commodity that can be bought, sold, or exchanged for something else. This works just fine for some things -- soybeans, electronic components, etc. It doesn't work so well for other things. Market-based thinking (and maybe utilitarianism) rests on the assumption that anything of any value, positive or negative, can be quantified and equivalently replaced by something else of the same value. It should be obvious that this isn't the case, since there are many things (honor, bodily integrity) that are by definition not for sale. But it's not obvious to some, and it leads them down ridiculous and dangerous pathways. When random net flamers do it, it's just amusing. But when important thinkers with tenure do it, it's positively alarming.