L.A. Liberty

The Expanding Nature of the State

From Gene Callahan’s Economics for Real People:

An unhampered market [that is, a free market without interference from the state] brings about its outcome through the voluntary choices of all people in that market. Any interference with the market process—such as rent control, farm subsidies, and so on—will, to some extent, thwart the realization of people’s preferences. People, in the face of such interference, will act to reassert their desires. However, the process has been made less efficient. One reason is the overhead of the government program itself. Another is the fact that market forces will reassert themselves, though in unexpected ways. If apples would be priced at $1.00 a pound on the unhampered market, but government sets the price at 60¢ a pound, people will still tend to pay the market price. However, they will go to the market expecting to pay 60¢ for a pound, and be surprised by paying 60¢ plus 40¢ worth of time waiting in line.

Even the minimal state, which attempts to provide only protection from the violence of others, runs afoul of such difficulties. Since the minimal state must tax, it must set the level of taxes, or, looking at the other side of the coin, it must decide how much protection to provide. Whatever level of protection it chooses, some people will be unhappy with that decision. Since, in a constitutional republic, the level of protection will be set somewhere in the middle of the range of desired amounts, there will be a large group of people who feel they are getting, and paying for, too much of it.

It’s not impossible that those people will choose to just grin and bear it, but it is very unlikely. Humans act in order to improve situations they find unsatisfactory, and the people paying too much in taxes, in their own eyes, have the motivation to act.

Not paying their taxes will subject them to violence from the state. But since those taxes were imposed on them by political means, it will occur to them that they can use the same means to try to gain some compensating benefit. Perhaps they will lobby to have extra protection for their neighborhood, to have a military base located nearby, thereby increasing local trade, or to get street lights on their road, in the name of increased security.

Whatever benefit they wrestle from the state will change the situation of those who were happy with the old amount of protection. They are paying the same amount in taxes as before, but some of their previous benefits have been shifted to others. Now they have a motivation to form an interest group and lobby the state to provide them with some new benefit as compensation for their loss. That creates a dynamic that tends to produce continual growth in state programs.

Furthermore, however wise and noble the founders of the state were, state service will act as a magnet for the person who wants to exercise power over others—as Hayek said, the worst rise to the top. In order to maneuver his way into a position of power, such a person will have every reason to rub salt in some interest group’s wound. By goading “his” interest group on in its grievance, a politician can build a “constituency” that he can ride to power.