The state's role in the creation of wealth

by Sam Selikoff April 27, 2010

Here’s a response I posted to a discussion about the causes of man’s creation of wealth.

I think you’re giving the State all the credit for man’s achievements. To be clear, I define the State as an entity which claims sole right to the use of force, and extracts its tax revenues via coercion.

It is true that private property enforcement is a precondition for prosperous free markets; however, this enforcement need not be provided by the State. In fact, the State violates private property rights by simply existing, as it is an institution based on coercion. But let’s put that aside for now.

It must be understood that the State is not now or can not ever be responsible for the gains made through the institution of capitalism. By its very nature, it is anti-capitalist, for its method of capital accumulation requires that capital in some form already exist. In other words, since the State finds its lifeblood in stealing, something must already exist for it to steal.

You may respond to my claim in the following way: After creation, the State does in fact allow capitalism to function by ‘establishing the rules of the game’ and acting as an ‘umpire’ to prevent potentially disastrous machinations of greedy individuals. It is only because the State has devised the Rule of Law, with proper enforcement, that free markets are ‘permitted to function’.

But this perspective confuses the Rule of Law with rules. The (true) Rule of Law always, by necessity, emerges from the citizenry. It is the fundamental belief in man’s natural right to his own property. To the extent that rules – enacted and enforced by the State – conform to the Rule of Law, people obey them. To the extent that they do not, people think less of them, and eventually, as history has shown us, rid of them altogether.

So we see that man has two ways of making himself better off. First, he can respect the Rule of Law, use his property for production, and trade with his fellow man. As Adam Smith teaches us, this process, through specialization and economies of scale, makes society better off.

Second, he can beat his fellow man over the head with a stick and steal his property. Predation of this sort – which is, of course, the essence of the State – obviously violates the Rule of Law, and discourages man from using this first method to make himself better off. In actuality, the extent to which the second means of acquisition violates the Rule of Law is the extent to which the first means will be diminished.

This resolves the apparent paradox that exists between my claims and your account of history. It may be true that productivity was first achieved in the presence of a State that was somewhat tolerant of the Rule of Law. But we must be completely clear that this betterment of man came about in spite of, and not because of, the existence of the State.

The State, as I’ve said before, is fundamentally anti-capitalist. The standard of living we enjoy today is the result of an abundance of goods and services. This abundance could have only been brought about by the first means, and not the second.

Private property can be enforced without the State, as it was in ancient Ireland; but that is an entirely different discussion. More relevant here is the understanding of how wealth is and is not created. Only then can we see the State for what it really is: an inhibitor of freedom, and a destroyer of prosperity.

I highly suggest reading Murray Rothbard’s "Anatomy of the State". You’ll never look at the government the same way again.


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