The Role of the State in the Creation of Wealth
Part of an ongoing discussion:
“Does government always destroy wealth?”
From the point of view of an economist, there are four types of goods.
“Free Goods” are things like air, or the sight of the beautiful moon, which need not and cannot be economized because they are not scarce enough. Unless you are planning to scuba dive, air is free. Your breathing the air does not deprive anyone else from breathing. Any good that is not a free good is scarce.
“Goods” refers to scarce goods that can be traded. Economists exclusively refer to goods of this type.This is things like lumber, cans of beans, widgets, wickets, wages.
“Intellectual property” can be both kept and given away merely by making a copy, and so in some ways acts like a free good, and does not naturally need to be economized. Indeed, the American Constitution provides that the Congress can grant a monopoly to the inventor of intellectual property, such as a trade mark, copyright, or patent, in order to make the good artificially scarce, that the inventor might for a limited period of years recoup his investment required to create it.
“Public Good” this refers to things like the courts of law, peace and civil order, a common set of contract and tort laws to govern the market, laws controlling fraud and honesty in advertising, as well as imponderables such as a national dignity and reputation to awe those participating in an overseas market into forgoing the temptation to cheat, expropriate, and nationalize our goods and investments.
The public good of civil order is a necessary precondition for a secure market, and hence must exist before a market exists. Some civil order can be maintained without the need of government for limited periods of time between relatively honest strangers, but in general and over the long term the civil order is maintained by the majesty and terror of the drawn sword of the sovereign power. The laws of economics are laws of nature, and will exist whether the marketplace is peaceful and secure or not. Insecurity of the market raises the transaction cost. It is dangerous to barter with pirates and slavers and rumrunners and strangers met by night on the high seas.
When the sovereign power imposes cruel, wicked and stupid laws that render the cringing subjects uncertain in their possessions and contracts (see, for example, the history of the Copts under Arab rule in Egypt, or the Irish trampled by the English) to the point where it is less unsafe to barter with pirates, and the subjects are better off in anarchy and mutiny than to suffer the continued protection of their sovereign.
I can imagine no way to calculate the money value of civil order or a uniform commercial code. Certain things, such as the coinage of money or the strict liability of manufacturers, allegedly lowers the transaction costs of doing business within a state that maintains a government-run mint or has laws to punish false advertising and fraud. Certain libertarians aver that the transaction costs and the loss of civil liberties occasioned by national banks, standardized coinage, or laws against false advertising are too high to justify what they say are minor benefits. I am not willing to dismiss such arguments out of hand, but it is too complex to examine them now.
Suffice it to say that the state does not either always destroy wealth nor always create wealth. The function of the state is primarily to defend the citizens from external enemies and internal tumults and injustices, and secondarily to encourage a common spirit and civic virtues without which a corporate or collective body cannot survive. It actually had very little to do with wealth one way or the other.
Wars cost money, but if a victor in a life or death struggle with an implacable enemy says his life, limb, property and liberty are not worth the cost in taxes to fill the king’s war chest and conscription to fill the king’s rank and file, then such a victor is unworthy of his victory, and if his words were true, his reward should be chains, stripes, and death.
About John C Wright
John C. Wright is a practicing philosopher, a retired attorney, newspaperman, and newspaper editor, and a published author of science fiction. Once a Houyhnhnm, he was expelled from the august ranks of purely rational beings when he fell in love; but retains an honorary title.
