The scope of government in a free society.

• Author: Dorn, James A.
• Position: Essay

The purpose of this article is to delineate the legitimate functions of government in a free society. This exercise differs from determining the "optimal" size of government, which economists have estimated at 15 to 30 percent of gross domestic product. James Madison, the chief architect of the U.S. Constitution, was not primarily looking for an engine of economic growth; he was seeking an institutional design to limit the powers of government and protect individual rights. People would then be free to pursue their happiness and, in the process, create wealth.

Eighteenth century liberals had no theory and no formal models to calculate the optimal size of government. They started from first principles and sought to discover the legitimate functions of government. Their emphasis was on liberty--not democracy; they sought to prevent injustice, not to use government power to obtain some vague concept of social justice. Classical liberals viewed economic development as an expansion of the range of choices open to individuals, not simply as growth in real GDP per capita (there were no GDP statistics). They understood that getting the rules right and allowing markets to expand would increase personal and economic freedom, thereby increasing the wealth of nations (Bauer 1957: 113; Doru 2002).

There is no more important question than the scope of government in a free society. The legitimate functions of government help define the range of choices open to individuals and, hence, the boundaries between the individual and the state. Limiting the powers of government to the protection of persons and property-broadly understood in the Lockean sense as "lives, liberties, and estates"--provides a clear sense of justice and promotes a spontaneous market order, enhancing both personal and economic liberties. An overreaching government does the opposite.

An Overview

The Framers of the U.S. Constitution took it as "self-evident that all men are created equal" and have "unalienable rights" including the rights to "'life, liberty, and the pursuit of happiness." Those rights, as expressed in the Declaration of Independence, were incorporated in the broad rubric of property--understood as "everything to which a man may attach a value and have a right; and which leaves to everyone else the like advantage" (Madison 1792, in Hunt 1906: 101).

Madison held that the legitimate and primary function of a just government is "to protect property of every sort; as well that which lies in the various rights of individuals, as that which the term particularly expresses" (Madison 1792, in Hunt 1906: 102). Thus, in the Madisonian vision of government and society, there is no separation between good government, personal liberty, private property, and justice. "It is sufficiently obvious," Madison ([1829a] 1865: 51) argued, "that persons and property are the two great subjects on which Governments are to act; and that the rights of persons and the rights of property are the objects for the protection of which Government was instituted." Madison's constitutional republic was to be one of limited powers under a rule of law, rather than an intrusive state aimed at redistributing income and wealth via the democratic process.

The basis of the U.S. experiment in designing a system of government to "secure the blessings of liberty'" was the principle of consent. Within a regime protecting individual rights to life, liberty, and property, people would be free to pursue their own happiness without interfering with the equal rights of others.

The existence of slavery, however, violated the very heart and soul of the normative principles underlying the Constitution and expressed in the Declaration of Independence. It took the Civil War and constitutional amendments to finally move the country closer to the ideals expressed in the Constitution as a "charter of freedom."

The principle of freedom or nonintervention means that individuals have the right to pursue their preferred choices provided they do not interfere with the equal rights of others. Private property-beginning with self-ownership--is synonymous with personal liberty and freedom of contract (consent). Justice requires that government and law, which operate through power/coercion, be limited to the prevention of injustice--that is, to the defense of one's person and property, viewed as natural rights that exist prior to government. This model of good government is the "'simple system of natural liberty" that Adam Smith and the Scottish Enlightenment thinkers so admired, both for its moral consistency and for its practicality in 'allowing people to pursue their own interests while bringing about social and economic harmony.

The demise of the U.S. "constitution of liberty," to use F. A. Hayek's term (Hayek 1960), began during the Progressive Era toward the end of the 19th century and accelerated with the Great Society programs in the mid-1960s. Most recently, in the wake of the 2008 financial crisis, the rapid growth in the size and scope of government has further expanded the redistributive/welfare state and eroded the Framers' Constitution of liberty. At the beginning of the 20th century, total U.S. government spending was about 10 percent of GDP, and most of that was at the state and local levels. Entitlements were seen as unconstitutional and inconsistent with an American culture of independence and moral rectitude. Today, welfare spending is an important component of government budgets, total government spending is about 36 percent of GDP, and federal spending is about 24 percent.

The real size and scope of the federal government, however, is vastly understated ff one merely looks at present obligations and ignores future promises. The unfunded liabilities in Medicare and Social Security are now more than $100 trillion in present value terms and far exceed the explicit federal debt of roughly $15 trillion. Moreover, the high costs of regulation, the heavy excess burden of high marginal tax rates, the waste inherent in rent-seeking, and the damage to our moral fiber from the rise of the welfare state and the "too big to fail" mentality have eroded property rights, responsibility, and freedom.

In this article, the links between law, liberty, and justice will be explored. In particular, the distinction between what Adam Smith called "perfect justice" and "imperfect justice" will be elaborated on. It will be seen that only the former can be extended to all persons without...