The Paradox of Government
If men were angels, no government would be necessary. If angels were to govern men, neither external nor internal controls on government would be necessary. In forming a government which is to be administered by men over men, the great difficulty lies in this: you must first enable government to control the governed; and in the next place oblige it to control itself. — James Madison, The Federalist No. 51
Quis custodiet ipsos custodes? — Juvenal, Satires
Economic prosperity requires a legal system that protects property rights and enforces contracts. Establishing a legal system in turn requires an agency with a monopoly of violence—a government. Herein lies the paradox of government: an agency with a monopoly of violence has the ability to protect property rights, but it also has the ability to violate them. As Weingast writes: “The fundamental political dilemma of an economic system is this: A government strong enough to protect property rights and enforce contracts is also strong enough to confiscate the wealth of its citizens.”
The problem, then, is empowering government to subdue predators without letting it become an instrument of predation itself. This means giving government the power to protect property rights while at the same time preventing it from using this power to destroy property rights. How is it possible to simultaneously empower and constrain government?
The rarity of economic prosperity throughout history tells us that solving the paradox of government is no easy feat. But the existence of economic prosperity in the first world tells us that first-world governments have been able to find at least a somewhat good solution to the paradox.
So how can the paradox be solved? Given that government has the ability to do good (enforce property rights) and bad (destroy property rights), how do we give government agents the incentive to do good and avoid bad?
The traditional solution given by constitutional political economists has been: constitutional constraints. The point of federalism, separation of powers, and the rule of law is to structure government power in such a way as to limit how that power can be used.
And it seems like these constitutional constraints have worked. In the first world at least, government violation of property rights is fairly limited. There is little arbitrary seizure of property. Most restrictions on property rights come in the form of taxation and regulation, and these are institutionalized in the democratic process. Hence they are more regular than arbitrary, which is a good thing.
As I have argued elsewhere, market anarchism can be seen as the logical conclusion of constitutionalism and the best solution to the paradox of government. The checks and balances inherent in market competition are a stronger constraint on power than any governmental mechanism like federalism or separation of powers. Hence the principles of constitutionally limited government are most effectively realized in the system of market anarchism.
The case for market anarchism depends crucially on rejecting the premise that a well-functioning legal system requires a monopoly of violence. But it’s not clear that such a legal system can exist without a state. I plan to address this question in my future research.