Relay-Version: version B 2.10 5/3/83; site utzoo.UUCP Posting-Version: version B 2.10.2 9/18/84; site gargoyle.UUCP Path: utzoo!watmath!clyde!burl!ulysses!mhuxr!mhuxt!houxm!ihnp4!gargoyle!carnes From: carnes@gargoyle.UUCP (Richard Carnes) Newsgroups: net.politics.theory Subject: Role of the state in the economy Message-ID: <205@gargoyle.UUCP> Date: Thu, 3-Oct-85 18:18:54 EDT Article-I.D.: gargoyle.205 Posted: Thu Oct 3 18:18:54 1985 Date-Received: Fri, 4-Oct-85 06:52:57 EDT References: <1674@dciem.UUCP> <28200103@inmet.UUCP> <1351@teddy.UUCP> Reply-To: carnes@gargoyle.UUCP (Richard Carnes) Organization: U. of Chicago, Computer Science Dept. Lines: 60 [Kolodney] >>The entire economy, without which the concept of wealth would be >>meaningless, is based on a governmentally created and controlled >>system of commerce. > >[nrh] >Governmentally Created? I find that MOST difficult to believe. What >records do you have to substantiate that government created commerce, >rather than distorting what was there? In particular, the use of >non-government-created money (such as gold) predates official money, >with (so far as I know) the first government inflation being that of >ancient Rome. > >Government "controlled"? Why yes, that's quite true, but it doesn't >explain why the Chinese starvation dropped when their government >began allowing folks to sell crops privately. In short, you've confused >"controlled", with "aided". I agree that governments have been the source of a huge amount of economic decline in the past and present. However, it is also true that government, or the state, is essential for economic growth. By "the state" I mean here an organization that has a comparative advantage in violence and which extends over a geographic area determined by its power to tax. Its comparative advantage in violence enables it to specify and enforce property rights. (This bears on the space colony Anarchia: assuming it can come into existence in the first place, how would property rights be specified and enforced, except by such an organization?) The creation of the state in antiquity was the necessary condition for all subsequent economic development. What the state does is to provide the basic rules of the game, almost any set of which is better than no rules. The rules have two objectives: 1. To provide a structure of property rights which specify the fundamental rules of competition and cooperation, in order to maximize the income of the ruler; in other words, to specify the ownership structure in factor and product markets. 2. Within this framework, to reduce transaction costs in order to maximize the output of society and thus increase tax revenues. The state does this by providing a set of goods and services (protection and justice) that lower the cost of specifying, negotiating, and enforcing the contracts which are basic to economic exchange. The economies of scale provided by systems of law, justice, and defense are basic to civilization. Individuals who have been given a choice between a state, however exploitative, and anarchy, have, throughout history, chosen the state. Libertarians need to be able to give a satisfactory explanation for this uncooperative fact. Note that there is a potential conflict between the first objective, designed to maximize the ruler's (or ruling class's) own income, and the second, designed to maximize the society's output. This may be the root cause of the failure of societies to achieve indefinitely sustained economic growth, although ancient Egypt, Greece, and Rome, as well as modern societies, all experienced lengthy periods of economic growth. This was made possible by the state's provision of a framework for economizing on the use of resources. -- Richard Carnes, ihnp4!gargoyle!carnes