Tom Palmer was at CCS on 22 July to discuss market-based solutions to public policy. He began his talk with an interesting distinction between the ‘government’ and the ‘state’ and went on to discuss the need for a market economy.

State:

In his talk, Tom highlighted the common mistake that anthropologists make, in studying mountain or tribal communities to better understand how pre-historic men used to live. This, he said, was fundamentally wrong, because people in these communities do not live anything like people did 25,000 years ago. These people are refugees from conquest – refugees who escaped from modern states – taxation, military conscription, enslavement and rape. This is why we often find layers of ethnicity in these communities as different groups who escape conquest push the older groups further up, while conquerors take over the valleys. Often, multiple languages are spoken in these communities, which are linguistically unrelated to one another. Georgia is an example of such a state.

Tom said that James Scott pinpoints another mistake made by anthropologists – that of assuming that the state is attempting to maximise Gross Domestic Product (GDP). In fact, what states are doing is capturing the SAP – the State Accessible Product. A ruler maximises the SAP, if necessary at the expense of the overall wealth of the realm and its subjects. They want a product that is easy to tax and there are examples from across the world of governments systematically shaping the economy not just to increase total wealth, but to increase their ability to tax it.

Government:

The government as an institution must be distinguished from the entity that is the state. The two are often considered synonymous, however the government is an institution in that it provides rules for behaviour. Enforcement of these rules need not be a function of the government – the functions of creating the rules and enforcing them do not need to be unified in a monopoly.

If we compare feudal society to civil society, like those found in cities, we see that cities gave rise to many ‘institutions’ as people come together to produce a variety of public goods. One example is the ‘Company’, which, literally translated means ‘eating together’ and was the name given to groups of merchants who met and had dinner together; and organised themselves and set rules of behaviour which gave us our current corporate by-laws.

Law was produced not by the rulers or the states, but by business people, who set out these rules to make it easy to carry out transactions and address disputes. These companies also gave us ‘law’ as we know it today – the Lex Mercatoria. Today, all international commercial law originates in the Lex Mercatoria.

Market Economy:

Mises defined a market economy as the ‘social system of division of labour and private ownership of the means of production. Everybody acts on their own behalf, but their actions aim at the satisfaction of the needs of others as well as their own.’

In a market, a person sets out to satisfy their own needs, but in order to do so, they must satisfy someone else’s needs as well. Therefore, a market is characterised by ‘non-tuism’, which means we are not interested in the interests of those with whom we interact, but are not selfish. We are simply trying to get the best deal possible.

The basis for a market economy is monetary economic calculation that allows us to compare different kinds of things. This economy needs rules to function – rules related to property rights, contracts and liability. Property creates the foundation for the voluntary cooperation necessary for the market economy, and property rights must be:

  • Definable
  • Defendable
  • Divestible

States can provide the rules necessary (but it need not enforce these rules). The problem, however, is that states can also be the biggest criminals or violators of these rules.

You can find the podcast of Tom Palmer’s talk here. His presentation is available here.