The state and the networked economy.

• Author: Grady, Mark F.

1. INTRODUCTION

   This Essay will examine how the networked economy may affect the cause of liberty. The traditional view, very evident in the novels 1984 (1) and Brave New World, (2) has been pessimistic about information technology's probable effect on liberty. My own view is that the new networks, spawned by the Internet and other information technology, are hopeful developments. I will defend this optimistic viewpoint by looking at the history and nature of the state, including the despotic state, and then examine how information technology will predictably alter the balance between liberty and despotism.

2. PRIOR THEORIES OF THE ORIGIN OF THE STATE

   I will examine four provocative theories of the origin of the state and then develop a synthesis from them, hopefully adding something new in this last step. The four theories are the Hobbes-Buchanan contractarian theory, (3) Karl Wittfogel's hydraulic despotism theory, (4) Robert Carneiro's circumscription theory, (5) and Mancur Olson's stationary bandit theory. (6) These theories of the origin of the state do not all make claims about how a state whose origin is so conceived will respect human liberty but are at least suggestive of such claims. Only the Hobbes-Buchanan theory describes a constitution, but the other theories can be significantly improved if we add the potential for a constitution along lines Michael McGuire and I have previously suggested. (7)

   1. The Hobbes-Buchanan Contractarian Theory

      Thomas Hobbes famously began his analysis with a consideration of the state of nature. He assumed that before formal governments existed people were reasonably equal in endowments. (8) From this rough equality of mental and physical assets, each had an equal hope of acquiring the same ends, which were scarce. Hence, individuals fell into competition with each other, which resulted in the "war of every man against every man." (9) In such a state, opportunities for production, investment, learning, and exchange were limited, because each individual possessed "continual fear and danger of violent death." (10) In order to relieve themselves of eternal conflict, individuals have an incentive to organize themselves into a commonwealth, which is a hierarchy that "tie[s] them by fear of punishment to the performance of their covenants and observation of th[e] laws of nature...." (11) They institute this commonwealth by giving a monarch or an assembly the right to represent them. (12)

      Two hallmarks of Hobbes's analysis are that people at least hypothetically agree to a constitution that (1) legitimizes private law and (2) does not otherwise limit the sovereign's appropriations from his (or its) subjects. In fact, Hobbes was fairly adamant that the constitution did not limit sovereign appropriations. His analysis constantly emphasized that the constitutional problem was the legitimacy of private law.

      Because Hobbes thought that worthy private law rules could not arise in the state of nature, he had to posit a commonwealth, created by the hypothetical contract among subjects or citizens, as the foundation for these rules, which he analyzed in detail. Correspondingly, when it came to the natural limits that might exist for the sovereign's appropriations, Hobbes found few. For instance, he asserted that no subject had the right to defend another against any government imposition, just or unjust, though he did admit the right of any subject to defend at least his own person against violent force, whether wielded by the commonwealth or by another subject. (13) Nevertheless, despite Hobbes, the real constitutional problem is the legitimacy of the sovereign's appropriations, as most constitution framers have recognized.

      Even so able an analyst as James Buchanan has followed Hobbes in stressing as a problem the constitutional legitimacy of private law rules. More explicitly than Hobbes, Buchanan has claimed that the problem of sovereign appropriation is inextricably linked to the legitimacy of private law rules. In his justly acclaimed work The Limits of Liberty, (14) Buchanan formalized and extended Hobbes's analysis. Buchanan argues that it is useful to conceive of civil society as the result of three steps: (1) a natural distribution of resources; (2) a constitutional contract that is negotiated between the members of society; and (3) a post-constitutional regime in which other contracts between society members become possible because of the constitutional contract. (15) The natural distribution of the resources is simply the one that results from the original, supposed Hobbesian anarchy in the state of nature. The parties' attacks against each other and their defenses yield a distribution of goods between them and de facto private property. (16) This natural distribution then becomes the basis for Buchanan's constitutional contract. (17) The parties realize that they can save their costs of attack and defense against each other if they all agree to a constitution that allocates legal property rights among them and then delegitimizes their further appropriations of each other. (18) Moreover, besides a law of property, the members of society can also agree to a law of contract, which is implied by their agreement to outlaw forcible appropriations of property. (19) In this new world, created by the constitutional contract, the parties save the costs of attack and defense and acquire the benefits of trade. (20)

      Buchanan's writing is premised on the notion that the problem of sovereign appropriation logically derives from the problem of knowing how to make the structure of private law legitimate. Nevertheless, as will be discussed in the next section, it is impossible to derive a theory of sovereign restraint from a theory of how private law becomes legitimate. The legitimacy of private law is not a large problem in any event. Even the most extreme despot has an incentive to enforce private law rules that maximize social wealth so that he can appropriate more wealth. Efficient private law rules do not depend on a constitutional contract, as Buchanan claims they do; instead, they depend only on the evolution of a hierarchical structure of society that gives some individuals the power to appropriate wealth from others. This hierarchical structure will normally follow either from a disparity of endowments in the state of nature or from the differing fortunes of different individuals who possess substantially equivalent endowments.

      Buchanan's own theory of sovereign restraint is modest. Most despots could evade its requirements. Buchanan writes that "`the government'" might arbitrarily reassign private rights in a way that "violates the basic terms upon which the social structure operates." (21) In this situation, Buchanan reasons, "there is no requirement that its actions be `honored' with ethical sanctions." (22) The role that Buchanan envisions for the sovereign is an "enforcing agent for individual rights...." (23) Nevertheless, he argues that a sovereign might overstep and alter the system of private rights, which would deprive individuals of their private rights. (24) This is a basic theme that runs through public choice literature, which Buchanan and Gordon Tullock founded. (25) The basic constitutional danger is supposedly the sovereign (or...