Government has an important role to play in a free society. It is supposed to protect our rights, creating a society in which people can live their lives and undertake projects reasonably secure from the threat of murder, assault, theft, or foreign invasion. By the standards of most governments in history, this is an extremely modest role. That’s what made the American Revolution so revolutionary. The Declaration of Independence proclaimed, To secure these rights, governments are instituted among men. Not to make men moral. Not to boost economic growth. Not to ensure everyone a decent standard of living. Just the simple, revolutionary idea that government’s role was limited to securing our rights. But imagine how much better off we would all be if our government did an adequate job at this simple, limited task.
Unfortunately, most governments fail to live up to Thomas Jefferson’s vision in two ways. First, they don’t do a good job of swiftly and surely apprehending and punishing those who violate our rights. Second, they seek to aggrandise themselves by taking on more and more power, intruding themselves into more aspects of our lives, demanding more of our money, and depriving us of our liberty.
The most revolutionary aspect of the American Revolution was that it sought to create from scratch a national government limited to very little more than protecting individual rights. During the Middle Ages, in England and other European countries, the idea of limits on government had grown. Cities had written their own constitutional charters, and representative assemblies had sought to control kings through documents such as Magna Carta and the Golden Bull of Hungary. Many of the American colonists—and some of their British supporters such as Edmund Burke—saw the Revolution as a reclaiming of their rights as Englishmen. But the soaring words of the Declaration and the strict rules of the Constitution went further than any previous effort in declaring the natural rights of life, liberty, and property and delegating to the new government only the powers necessary to protect those rights.
We should distinguish at this point between government and state. Those two terms are sometimes used interchangeably, especially in American English, but they actually refer to two very important but easily confused kinds of institutions. A government is the consensual organisation by which we adjudicate disputes, defend our rights, and provide for certain common needs. A condominium association, for example, has a government to adjudicate disputes among owners, regulate the use of common areas, make the residents secure from outside intruders, and provide for other common needs. We can readily see why people seek to have a government in this sense. In every case, the residents agree to the terms of the government (its constitution or charter or by-laws) and give their consent to be governed by it. A state, on the other hand, is a coercive organisation asserting or enjoying a monopoly over the use of physical force in some geographic area and exercising power over its subjects. The audacity and the genius of the American Founders was to attempt to create a government that would not be a state.
Historically, the real origins of the state lie in conquest and economic exploitation. The sociologist Franz Oppenheimer pointed out that there are two basic ways to acquire the means to satisfy our human needs. These are work and robbery, one’s own labor and the forcible appropriation of the labor of others. He called work and free exchange the economic means of acquiring wealth, and the appropriation of the work of others the political means.
From this basic insight, Oppenheimer said, we can discern the origins of the state. Banditry and robbery and fraud are the usual ways in which people seek to forcibly appropriate what others have produced. But how much more efficient it would be to organise and regularise robbery! According to Oppenheimer, The State is the organisation of the political means. States arose when one group conquered another and settled in to rule them. Instead of looting the conquered group and moving on, the conquerors settled down and switched from looting to taxing. This regularisation had some advantages for the conquered society, which is one reason it endured: rather than planting crops or building houses and then being subject to unpredictable looting by marauders, the peaceful and productive people may prefer simply to be forced to give up, say, twenty-five percent of their crop to their rulers, secure in the knowledge that that will—usually—be the full extent of the depredation and that they will be protected from marauders.
This basic understanding of the distinction between society and the state, between the people and the rulers, has deep roots in Western civilisation, going back to Samuel’s warning to the people of Israel that a king would take your sons, and your daughters, and your fields and to the Christian concept that the state is conceived in sin. The Levellers, the great fighters for English liberty in the time of Charles I and Cromwell, understood that the origins of the English state lay in the conquest of England by the Normans, who imposed on free Englishmen a Norman yoke. A century later, when Thomas Paine sought to undermine the legitimacy of the British monarchy, he pointed out, A French bastard, landing with an armed banditti, and establishing himself king of England against the consent of the natives, is in plain terms a very paltry rascally original.
In a 1925 essay, More of the Same, the journalist H. L. Mencken agreed:
The average man . . . sees clearly that government is something lying outside him and outside the generality of his fellow men—that it is a separate, independent, and hostile power, only partly under his control, and capable of doing him great harm. . . . [Government] is apprehended, not as a committee of citizens chosen to carry on the communal business of the whole population, but as a separate and autonomous corporation, mainly devoted to exploiting the population for the benefit of its own members. . . . When a private citizen is robbed, a worthy man is deprived of the fruits of his industry and thrift; when the government is robbed, the worst that happens is that certain rogues and loafers have less money to play with than they had before.
The democratic state
It is usually argued in the United States that all this may have been true in ancient times, or even in the countries our forefathers fled, but that in a democratic country we are the government. The Founders themselves hoped that a democratic—or, as they would have said, a republican—form of government would never violate people’s rights or do anything against the interests of the people. The unfortunate reality is that we can’t all be the government. Most of us are too busy working, producing wealth, taking care of our families to watch what the rulers are doing. What normal, productive person can read a single one of the thousand-page budget bills that Congress passes each year to find out what’s really in it? Not one American in a hundred knows how much he really pays in taxes, given the many ways that politicians hide the real costs.
Yes, we have the power every four years or so to turn the rascals out and put in a new set of rascals. But many factors limit the value of that power:
- There aren’t many fundamentally different alternatives on the ballot. Most choices are hardly worth getting excited about.
- We have to choose a package deal. In the real world, one candidate offers higher taxes, legalised abortion, and getting out of the war in Vietnam; another promises a balanced budget, school prayer, and escalation of the war. What if you want a balanced budget and withdrawal from Vietnam? In the marketplace, you get lots of choices; politics forces you to choose among only a few.
- People employ what economists call rational ignorance. That is, we all spend our time learning about things we can actually do something about, not political issues that we can’t really affect. That’s why more than half of us can’t name either of our U.S. senators. And why most of us have no clue about how much of the federal budget goes to Medicare, foreign aid, or any other program. Even if a citizen studies the issues and decides to vote accordingly, he has a one in a hundred million chance of influencing the outcome of the presidential election, after which, if his candidate is successful, he faces a Congress with different ideas, and in any case, it turns out the candidate was dissembling in the first place. Instinctively realising all this, most voters don’t spend much time studying public policy.
- Finally, as noted above, the candidates are likely to be kidding themselves or the voters anyway. One could argue that in every presidential election since 1968, the American people have tried to vote for smaller government, but in that time the federal budget has risen from $178 billion to $1.6 trillion. George Bush made one promise that every voter noticed in the 1992 campaign: Read my lips, no new taxes. Then he raised them. If we are the government, why do we get so many policies we don’t want, from school busing and the war in Vietnam to huge deficits, tax rates higher than almost any American approves, and the intervention in Bosnia?
No, even in a democracy there is a fundamental difference between the rulers and the ruled. Mark Twain once said, It could probably be shown by facts and figures that there is no distinctly native American criminal class except Congress. Of course, Congress is no worse than its counterparts in other countries.
One of the most charming and honest descriptions of politics ever penned came from a letter written by Lord Bolingbroke, an English Tory leader in the eighteenth century.
I am afraid that we came to Court in the same dispositions as all parties have done; that the principal spring of our actions was to have the government of the state in our hands; that our principal views were the conservation of this power, great employments to ourselves, and great opportunities of rewarding those who had helped to raise us and of hurting those who stood in opposition to us.
Why government gets too big
Thomas Jefferson wrote, The natural progress of things is for liberty to yield and government to gain ground. Two hundred years later, James M. Buchanan won a Nobel Prize in economics for a lifetime of scholarly research confirming Jefferson’s insights. Buchanan’s theory, developed along with Gordon Tullock, is called Public Choice. It’s based on one fundamental point: Bureaucrats and politicians are just as self-interested as the rest of us. But lots of scholars did—and do—believe otherwise, and that’s why textbooks tell us that people in the private economy are self-interested but the government acts in the public interest. Notice the little sleight of hand in that last sentence? I said people in the private economy, but then I said government acts. Switching from the individual to the collective confuses the issue. Because actually, the government doesn’t act. Some people in the government act. And why should the guy who graduates from college and goes to work for Microsoft be self-interested, while his roommate who goes to work for the Department of Housing and Urban Development is suddenly inspired by altruism and starts acting in the public interest?
As it turns out, making the simple economic assumption that politicians and bureaucrats act just like everyone else, namely, in their own interest, has enormous explanatory power. Far better than the simplistic civics-book model that assumes public officials act in the public interest, the Public Choice model explains voting patterns, lobbying efforts, deficit spending, corruption, the expansion of government, and the opposition of lobbyists and members of Congress to term limits. In addition, the Public Choice model explains why self-interested behaviour has positive effects in a competitive marketplace but does such harm in the political process.
Of course politicians and bureaucrats act in their own interest. One of the key concepts of Public Choice is concentrated benefits and diffuse costs. That means that the benefits of any government program are concentrated on a few people, while the costs are diffused among many people. Take Archer Daniels Midland’s ethanol subsidy, for instance. If ADM makes two hundred million dollars a year from it, it costs each American about a dollar. Did you know about it? Probably not. Now that you do, are you going to write your congressman and complain? Probably not. Are you going to fly to Washington, take your senator out to dinner, give him a one thousand dollar contribution, and ask him not to vote for the ethanol subsidy? Of course not. But you can bet that ADM chairman Dwayne Andreas is doing all that and more. Think about it: How much would you spend to get a two hundred million dollar subsidy from the federal government? About one hundred ninety-nine million dollars if you had to, I’ll bet. So who will members of Congress listen to? The average Americans who don’t know that they’re paying a dollar each for Dwayne Andreas’s profits? Or Andreas, who’s making a list and checking it twice to see who’s voting for his subsidy?
If it were just ethanol, of course, it wouldn’t matter very much. But most federal programs work the same way. Take the farm program. A few billion dollars for subsidised farmers, who make up about one percent of the U.S. population; a few dollars a year for each taxpayer. The farm program is even more tricky than that. Many of its costs involve raising food prices, so consumers are paying for it without realising it.
Billions of dollars are spent every year in Washington to get a piece of the trillion dollars of taxpayers’ money that Congress spends every year. Consider this ad from the Washington Post:
Infrastructure . . . is a new Washington buzzword for: A. America’s crumbling physical plant? $3 trillion is needed to repair highways, bridges, sewers, etc. B. Billions of federal reconstruction dollars? The 5\c per gallon gasoline tax is only the beginning. C. Your bible for infrastructure spending—where the money is going and how to get your share—in a concise biweekly newsletter?
ANSWER: All of the above. Subscribe today.
Countless such newsletters tell people what kind of money the government is handing out and how to get their hands on it.
In 1987 an advertisement in the Durango, Colorado, Herald touting the Animas-La Plata dam and irrigation project made explicit the usual hidden calculations of those trying to get their hands on federal dollars: Why we should support the Animas-La Plata Project: Because someone else is paying the tab! We get the water. We get the reservoir. They get the bill.
Economists call this process rent-seeking, or transfer-seeking. It’s another illustration of Oppenheimer’s distinction between the economic and the political means. Some individuals and businesses produce wealth. They grow food or build things people want to buy or perform useful services. Others find it easier to go to Washington, a state capital, or a city hall and get a subsidy, tariff, quota, or restriction on their competitors. That’s the political means to wealth, and, sadly, it’s been growing faster than the economic means.
Of course, in the modern world of trillion-dollar governments handing out favours like Santa Claus, it becomes harder to distinguish between the producers and the transfer-seekers, the predators and the prey. The state tries to confuse us, like the three-card monte dealer, by taking our money as quietly as possible and then handing some of it back to us with great ceremony. We all end up railing against taxes but then demanding our Medicare, our subsidised mass transit, our farm programs, our free national parks, and on and on and on. Frederic Bastiat explained it in the nineteenth century: The State is that great fiction by which everyone tries to live at the expense of everyone else. In the aggregate, we all lose, but it’s hard to know who is a net loser and who is a net winner in the immediate circumstance.
Thus, every group in society comes up with a way for the government to help it or penalise its competitors: businesses seek tariffs, unions call for minimum-wage laws (which make high-priced skilled workers more economical than cheaper, low-skilled workers), postal workers get Congress to outlaw private competition, businesses seek subtle twists in regulations that hurt their competitors more than themselves. And because the benefits of every such rule are concentrated on a few people, while the costs are spread out over many consumers or taxpayers, the few profit at the expense of the many, and they reward the politicians who made it happen.
Another reason that government grows too big is what Milton and Rose Friedman have called the tyranny of the status quo. That is, when a new government program is proposed, it’s the subject of heated debate. (At least if we’re talking about big programs like farm subsidies or Medicare. Plenty of smaller programs get slipped into the budget with little or no debate, and some of them get pretty big after a few years.) But once it has passed, debate over the program virtually ceases. After that, Congress just considers every year how much to increase its budget. There’s no longer any debate about whether the program should exist. Reforms like zero-based budgeting and sunset laws are supposed to counter this problem, but they haven’t had much effect. When the federal government moved to shut down the Civil Aeronautics Board in 1979, they found that there were no guidelines for terminating a government agency—it just never happens. Even President Clinton’s own National Performance Review—the much-touted reinventing government project—said, The federal government seems unable to abandon the obsolete. It knows how to add, but not to subtract. But you could search a Clinton budget for a long time and not find a proposal to eliminate a program.
One element of the tyranny of the status quo is what Washingtonians call the Iron Triangle, which protects every agency and program. The Iron Triangle consists of the congressional committee or subcommittee that oversees the program, the bureaucrats who administer it, and the special interests that benefit from it. There’s a revolving door between these groups: a congressional staffer writes a regulation, then she goes over to the executive branch to administer it, then she moves to the private sector and makes big bucks lobbying her former colleagues on behalf of the regulated interest group. Or a corporate lobbyist makes contributions to members of Congress in order to get a new regulatory agency created, after which he’s appointed to the board of the agency—because who else understands the problem so well?
If bureaucrats and politicians are self-interested, like the rest of us, how will they act in government? Well, no doubt they will sometimes seek to serve the public interest. Most people believe in trying to do the right thing. But the incentives in government are not good. To make more money in the private economy, you have to offer people something they want. If you do, you’ll attract customers; if you don’t, you may go out of business, or lose your job, or lose your investment. That keeps businesses on their toes, trying to find ways to better serve consumers. But bureaucrats don’t have customers. They don’t make more money by satisfying more consumers. Instead, they amass money and power by enlarging their agencies. What do bureaucrats maximise? Bureaucrats! Their incentive, then, is to find ways to hire more people, expand their authority, and spend more taxpayers’ dollars. Discover a new problem that your agency could work on, and Congress may give you another billion dollars, another deputy, and another whole bureau under your control. Even if you don’t discover a new problem, just advertise that the problem you were commissioned to handle is getting a lot worse, and you may get more money and power. Solve a problem, on the other hand—improve children’s test scores or get all the welfare recipients into jobs—and Congress or your state legislature is likely to decide you don’t need more money. (It could even decide to shut your agency down, though this is largely an idle threat.) What an incentive system! How many problems are likely to get solved when the system punishes problem solving?
The obvious answer would seem to be to change the incentive system. But that’s easier said than done. Government doesn’t have customers, who can use its products or try a competitor instead, so it’s difficult to decide when government is doing a good job. If more people send letters every year, is the U.S. Postal Service doing a good job of serving its customers? Not necessarily, because its customers are captive. If they want to mail a letter, they have to do it through the Postal Service (unless they’re willing to pay at least ten times as much money for overnight service). As long as any institution gets its money coercively, through legally required payments, it is difficult if not impossible to measure its success at serving customers. Meanwhile, special interests within the system—politicians, administrators, unions—fight over the spoils and resist any attempts to measure their productivity or efficiency.
To see the self-interested nature of those in the state, just look at any day’s newspapers. Check out how much better the federal employees’ pension system is than Social Security. Look at the two million dollar pensions that will be collected by retiring members of Congress. Note that when Congress and the president temporarily shut down the federal government, they kept on getting their paycheques while rank-and-file employees had to wait.
Political scientist James L. Payne examined the record of fourteen separate appropriations hearings, committee meetings where members of Congress decide which programs to fund and by how much. He found that a total of 1,060 witnesses testified, of which 1,014 testified in favour of the proposed spending and only seven against (the remainder were not clearly for or against). In other words, in only half the hearings was there even one witness against the program. Congressional staff members confirmed that the same was true in each member’s office: The ratio of people coming in to ask the congressman to spend money versus those who opposed any particular program was several thousand to one.
No matter how opposed to spending a new legislator may be, the constant, day-in-and-day-out, year-in-and-year-out requests for money have an effect. He would increasingly say, We’ve got to get spending down, but this program is necessary. Studies indeed show that the longer a person stays in Congress, the more spending he votes for. That’s why Payne called Washington a Culture of Spending, in which it takes almost superhuman effort to remember the general interest and vote against programs that will benefit some particular person who visited your office or testified before your committee.
About a century ago a group of brilliant Italian scholars set out to study the nature of the state and its monetary affairs. One of them, Amilcare Puviani, tried to answer this question: If a government were trying to squeeze as much money as possible out of its population, what would it do? He came up with eleven strategies that such a government would employ. They’re worth examining:
- The use of indirect rather than direct taxes, so that the tax is hidden in the price of goods
- Inflation, by which the state reduces the value of everyone else’s currency
- Borrowing, so as to postpone the necessary taxation
- Gift and luxury taxes, where the tax accompanies the receipt or purchase of something special, lessening the annoyance of the tax
- Temporary taxes, which somehow never get repealed when the emergency passes
- Taxes that exploit social conflict, by placing higher taxes on unpopular groups (such as the rich, or cigarette smokers, or windfall profit makers)
- The threat of social collapse or withholding monopoly government services if taxes are reduced
- Collection of the total tax burden in relatively small increments (a sales tax, or income tax withholding) over time, rather than in a yearly lump sum
- Taxes whose exact incidence cannot be predicted in advance, thus keeping the taxpayer unaware of just how much he is paying
- Extraordinary budget complexity to hide the budget process from public understanding
- The use of generalised expenditure categories, such as education or defence, to make it difficult for outsiders to assess the individual components of the budget
Notice anything about this list? The United States government uses every one of those strategies—and so do most foreign governments. That just might lead a cynical observer to conclude that the government was actually trying to soak the taxpayers for as much money as it could get, rather than, say, raising just enough for its essential functions.
In all these ways, government’s constant instinct is to grow, to take on more tasks, to arrogate more power to itself, to extract more money from the citizenry. Indeed, as Jefferson observed, The natural progress of things is for liberty to yield and government to gain ground.
The state and war
The apotheosis of state power is war. In war the state’s force is not hidden or implicit; it is vividly on display. War creates a hell on earth, a nightmare of destruction on an otherwise unimaginable scale. No matter how much hatred people may sometimes feel for other groups of people, it’s difficult to conceive why nations have chosen so often to go to war. The calculation of the ruling class may be different from that of the people, however. War often brings the state more power, by drawing more people under its control. But war can enhance state power even in the absence of conquest. (Losing a war, of course, can topple a ruling class, so making war is a gamble, but the payoff is good enough to attract gamblers.)
Classical liberals have long understood the connection between war and state power. Thomas Paine wrote that an observer of the British government would conclude that taxes were not raised to carry on wars, but that wars were raised to carry on taxes. That is, the English and other European governments gave the impression of quarrelling in order to fleece their countries by taxes. The early twentieth-century liberal Randolph Bourne wrote simply, War is the health of the State—the only way to create a herd instinct in a free people and the best way to extend the powers of government.
U.S. history provides ample evidence of that. The great leaps in federal spending, taxation, and regulation have occurred during wartime—first, notably, the Civil War, then World War I and World War II. War threatens the survival of the society, so even naturally libertarian Americans are more willing to put up with state demands at such a time—and courts agree to sanction unconstitutional extensions of federal power. Then, after the emergency passes, the government neglects to give up the power it has seized, the courts agree that a precedent has been set, and the state settles comfortably into its new, larger domain. During major American wars, the federal budget has gone up ten- or twenty-fold, then fallen after the war, but never to as low a level as it was before. Take World War I, for example: Federal spending was over seven hundred million dollars in 1916 but rose to nearly nineteen billion dollars in 1919. It never again fell below three billion dollars.
It isn’t just money, of course. Wartime has occasioned such extensions of state power as conscription, the income tax, tax withholding, wage and price controls, rent control, censorship, crackdowns on dissent, and Prohibition, which really began with a 1917 statute. World War I was one of the great disasters of history: In Europe it ended ninety-nine years of relative peace and unprecedented economic progress and led to the rise of Communism in Russia and Nazism in Germany and to the even greater destruction of World War II. In the United States the consequences were far less dramatic but still noteworthy; in two short years President Woodrow Wilson and Congress created the Council of National Defence, the United States Food Administration, the United States Fuel Administration, the War Industries Board, the Emergency Fleet Corporation, the United States Grain Corporation, the United States Housing Corporation, and the War Finance Corporation. Wilson also nationalised the railroads. It was a dramatic leap toward the megastate we now struggle under, and it could not have been done in the absence of the war.
Statists have always been fascinated by war and its possibilities, even if they sometimes shrink from the implications. The rulers and the court intellectuals understand that free people have their own concerns—family and work and recreation—and it’s not easy to get them enrolled voluntarily in the rulers’ crusades and schemes. Court intellectuals are constantly calling for a national effort to undertake some task or other, and most people blithely ignore them and go on about the business of providing for their families and trying to build a better mousetrap. But in time of war—then you can organise society and get everyone dancing to the same tune. As early as 1910, William James came up with the idea of The Moral Equivalent of War, in an essay proposing that young Americans be conscripted into an army enlisted against Nature that would cause them to get the childishness knocked out of them, and to come back into society with healthier sympathies and soberer ideas.
Collectivists don’t like the killing involved in war, but they love its domestic effects: centralisation, the growth of government power, and, not coincidentally, an enhanced role for court intellectuals and planners with Ph.D.’s. The dangers of war in the modern era have encouraged the state and its intellectual allies to look for more trumped-up emergencies and moral equivalents of war to rally the citizenry and persuade them to give up more of their liberty and their property to the state’s plans. Thus we’ve had the War on Poverty, and the War on Drugs, and more crises and national emergencies than a planner could count on a super-computer. One advantage of these moral equivalents of war is that real wars eventually end, while the War on Poverty and the War on Drugs can go on for generations. And thus does the alliance between the state and its compliant intellectuals reach its zenith in war or its moral equivalent.
War, then, is Public Choice theory writ large: bad for the people but good for the governing class. No wonder everyone wishes it would stop but no one can stop it.
Make use of the following additional resources to expand knowledge and understanding of the topic covered in this unit.
The entire unit, including all additional resources, can also be downloaded as a workbook to be used offline.