Government and the Market: Chicken or Egg?

Economic Activity, Not Government, Was Probably the First Kind of Social Interaction between Individuals

MARCH 01, 1998 by JOHN HOOD

Filed Under : Government

John Hood is president of the John Locke Foundation, a nonprofit think tank based in Raleigh, North Carolina.

One evening not too long ago, I was invited to participate in a debate about state welfare policy. As much of our work at the John Locke Foundation had been directed toward various welfare bills in the state legislature, I welcomed the opportunity to discuss the policy issues involved.

Very quickly, however, I recognized that the audience, congregated at a local art gallery, was mostly on the side of my opponent, who heads a left-wing counterpart to our own organization. I decided that rather than limit our discussion to specific legislative proposals, I would shake things up a bit. I proceeded to explain that welfare was flawed public policy not just because it created dependency, or discouraged family formation, or cost too much money, but because it was wrong. “Using the power of government to take wealth from the person who earned it and give it to someone else isn’t charity,” I said. “It is stealing.”

To judge from the shocked and hostile response from audience members, you would think that I had uttered an expletive or lost control of my gastrointestinal system. Finally, after widespread sputtering and nervous cackling, one woman stood up to challenge what I had said. Essentially, she argued that using taxes for welfare isn’t stealing because one’s income isn’t really deserved. “Society” has a justifiable claim to it, she said, because of its role in making economic gain possible through law, past governmental expenditures, and the accumulated knowledge of generations of ancestors without which modern economic production would be impossible. Welfare, she continued, was just precisely because it transferred wealth from those who benefited most from the “social capital” available to those who, for various reasons, were least able to benefit from it.

Looking to Locke

This issue of whether one can truly lay claim to what one earns in economic exchange is, of course, a frequent topic in debates about public policy and the proper role of government. In my debate I found myself, perhaps not surprisingly, relying on the wisdom of John Locke for guidance about how to answer my interlocutor’s question.

Locke (1632–1704) was a pioneer in numerous fields, from epistemology and political philosophy to education and even medicine. (He performed a famous and probably unprecedented liver operation to save the life of a leading politician of his day, the future Earl of Shaftesbury, who became his lifelong political patron.) As a social contract theorist, he was no less a pioneer. Among his innovations was a discussion of how human beings in the state of nature might come to see the need for a government.

For Locke, the state of nature was simply the condition that exists before the advent of a civil government. While he and other theorists wrote about the social contract as a historical fact, and even suggested that the state of nature (or at least recently formed social contracts) might be found in primitive America or Africa, they clearly had in mind an analytical device for contrasting their own governments with an ideal.

In the state of nature, Locke wrote, all men were free and equal in the sense that no one individual had any natural right to rule any other. Unlike Thomas Hobbes, for example, Locke did not believe that life in the state of nature was always “nasty, brutish, and short,” nor did he agree with Hobbes that in a state of nature all men “are in that condition which is called war” each against the other. Instead, Locke believed that many (if not most) men, even in the state of nature, would be guided by a shared respect for the natural rights of others.

It is worth pausing here for a moment to consider how revolutionary Locke’s view of the state of nature was. He didn’t suggest that human beings had first lived in a historical Garden of Eden where no one need struggle to eke out an existence or to produce goods and services that others might desire. He was, in other words, not a dreamer who longed for an idyllic past. He viewed the modern day (at least of the mid-to-late-seventeenth century) as clearly superior to prior times, not just in technology or human comforts but in social development.

Nor did he suggest, as Hobbes did, that the state of nature was essentially a nightmare from which human beings might wish to escape so much that they would be willing to surrender virtually all their liberties to a tyrant in order to live in tranquility. Indeed, given the fact that his treatises on government were essentially written to justify the violent overthrow of tyrannical monarchs, Locke’s depiction of how and why human beings would enter a social contract is one of reasonable action by reasonable people who saw more to gain from government than would be lost and who could, if necessary, renegotiate their social contract when government ran afoul of its legitimate function.

The Primacy of the Market

“Locke believed that economic activity was present from the beginning of time and is the first and most important of human endeavors,” writes Karen Iversen Vaughn in her indispensable book John Locke: Economist and Social Scientist (University of Chicago Press). That critical fact about Locke’s system of thought helps to clarify the nature of property rights and economic justice. Rather than requiring government for markets to form, Locke argued that economic activity was probably the first kind of social interaction between individuals. (With the advantage of modern sociology, we might correct him to mean social interaction outside the bounds of kinship.)

Locke argued that government became necessary as the breadth and complexity of market interactions grew. Even well-meaning individuals seeking to respect the natural rights of others might not be able to deal with complex issues of property ownership, conflict over claims to “commons” such as air and running water, or appropriate remedies and punishments for transgressors of natural law. For one thing, humans are inherently self-interested and would tend to be prejudiced in their own favor when acting as judges and executors of natural law. Because, Locke wrote, men are “no strict observers of equity and justice” in such conflicts, life in the state of nature, while perhaps not a constant Hobbesian war, would be “very unsafe, very unsecure.”

As Vaughn paraphrases Locke, economic growth and the development of economic institutions would “finally become incompatible with the continuation of a state of nature.” So men would “turn to forming a civil government to help maintain the economic development which has taken place.” Furthermore, Locke makes it clear that in his theory of the creation of government, the chief objective of individuals would be to protect accumulated wealth. He would not have accepted the argument that most or all wealth was, in fact, a creation of governmental or societal action. For him, the generation of wealth preceded and made necessary the existence of government, not vice versa. Therefore, as Vaughn explains it, Locke concluded that “government has no right to pass legislation which will arbitrarily confiscate some people’s property and transfer it to others.”

Why Welfare Is Wrong

This aspect of Locke’s political writings isn’t simply an interesting theoretical point. Locke’s Two Treatises of Government were widely read throughout the eighteenth century and became part of the canon of liberty that guided Jefferson, Madison, and other founders of our republic. It is useful to know, therefore, that Locke did not view one’s property as the creation of government or, more vaguely, of “society.” Instead, he viewed economic activity as prior to all other social interaction (whether it be taxation, education, or philanthropy), and for that reason its results are not subject to being second-guessed by government.

This is not to deny, of course, that human beings thrive in communities. Certainly one’s ability to make a living is related to one’s rearing and education, as well as to the safety and security of the community in which one lives. But Locke would not view the self-interested (or the previously compensated) actions of others from which one benefits as creating a legal claim for them on one’s income or property. Taxation, as Locke and other liberals traditionally viewed it, was just only to the extent that it was used to pay for the necessary functions of government. Nor did they hesitate to define those functions. Government exists to protect the natural rights that each individual enjoys—to life, liberty, and the fruits of one’s labors. Other needs are best sought through the use of other social institutions, be they businesses, churches, charities, or families. As Locke wrote, “Private men’s interests ought not thus to be neglected, nor sacrificed to any thing but the manifest advantage of the public,” by which he did not mean the private interest of others.

Armed with Locke’s insight about the nature of property rights and government, I can confidently restate my initial premise. Welfare programs that use the tax system to provide a constant stream of income to those who don’t earn it is, in fact, a form of stealing. Saying so isn’t likely to endear yourself to the sort of folks who might attend a debate in a city art gallery, as I discovered, fortunately without too much personal discomfort. Nor does it necessarily suggest what should be done about welfare short term in the world of practical politics, an insight Locke himself, a lifelong practitioner of the political arts in his own time, would certainly have appreciated. (Indeed, while serving on the London Board of Trade, Locke devised his own “welfare reform” plan that focused not so much on immediate abolition as on work requirements and time limits.) But the fact of welfare’s fundamental immorality does put its proponents clearly on the defensive, where they certainly belong. Not bad for a 300-year-old liver surgeon, political schemer, and philosophical pioneer.


March 1998

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December 2014

Unfortunately, educating people about phenomena that are counterintuitive, not-so-easy to remember, and suggest our individual lack of human control (for starters) can seem like an uphill battle in the war of ideas. So we sally forth into a kind of wilderness, an economic fairyland. We are myth busters in a world where people crave myths more than reality. Why do they so readily embrace untruth? Primarily because the immediate costs of doing so are so low and the psychic benefits are so high.
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