The Basics: Anarchy and Public Goods
By Pierre Lemieux
Should Socrates have drunk the hemlock or was Antigone right to claim that one may morally disobey political authority? What is the state for? The economic concept of “public good” is central to answering these questions in economics and political philosophy. Here’s a short introduction—with some further questions.
A public good (sometimes called “collective good”) is something for which all members of a group are willing to pay some price, something that they will all be able to consume simultaneously, and for which it is impossible (or too costly) to charge a price to consumers. Think about fireworks over a city or national defense. Whether or not the state is required for the production of public goods is what makes James Buchanan a limited-government (classical) liberal and Anthony de Jasay an anarchist (even if other considerations such as the effects of political competition play a role).
The theory of public goods as today’s economists understand it was elaborated by Paul Samuelson in two articles of the Review of Economics and Statistics: a mathematical exposition in “The Pure Theory of Public Expenditure” (Novembre 1954), and a graphical and less technical presentation in “Diagrammatic Exposition of a Theory of Public Expenditure” (November 1955).
A public good can also be viewed as something that transmits positive externalities to all individuals in a group. An Econlib article by Bryan Caplan provides a good and short explanation of the concept of externalities. Although externalities and public goods are often thought as distinct concepts, their overlap has been noticed in the economic literature—from identifying “public good externalities” as a category of externalities (Francis M. Bator, “The Anatomy of Market Failure,” Quarterly Journal of Economics ), to noting that, between the two concepts, “there are no purely formal differences as far as necessary and sufficient conditions for top-level optimality are concerned” (E.J. Mishan, Introduction to Normative Economics, Oxford University Press, 1981). A public good exists, then, when its production for the benefit of paying customers automatically creates positive externalities for all those who do not pay.
Externalities are a more complex concept than many imagine. As noted by Mishan, they extend to the mere “an awareness of what is happening to others.” You transmit a negative externality to me if you privately do (or even just think about) something I don’t like being done (or thought about). This follows from the definition of externalities combined with the subjectivity of individual preferences. In a sense, public goods are a simpler concept than externalities because, by definition, they are unanimously liked. They are also more difficult to find.
Yet, there is little doubt that public goods exist, but the question is whether they exist for a group defined over a country, that is, for everybody in the group occupying a large territory dominated by a central state. Most if not all public goods are “public” only for a specific subgroup of society.
Are there public goods that justify the domination of a (central) state over a (wide) territory? De Jasay answers negatively. For Buchanan the answer is positive: individuals contract (implicitely) to form a country because there are some public goods such as national defense that they want.
Many questions remain. Buchanan uses a less technical or a priori concept of public goods that makes their existence depend on the definition of property rights in the social contract. Does not this open a Pandora box? What have the participants in the implicit social contract really “signed”? How can the state, if it is necessary, be limited? On de Jasay’s side, how can anarchy maintain something resembling a free society with formal individual rights and the rule of law?
Of course, other anarchist and liberal theorists exist. I am focussion on de Jasay and Buchanan because their theories are especially interesting and because they show the central place of public goods.
Can we avoid choosing between de Jasay and Buchanan by rejecting the relevance of public goods in social theory and framing the social problem in terms of coordination by evolved rules? This is the approach of David Hume, the Scottish Enlightenment, and Friedrich Hayek. But it is not sure that this third way provides an escape. De Jasay claims to be following Hume. And Buchanan suggests that “evolutionary and contractarian explanations can be complements rather than substitutes” (Economics and Philosophy 4 ).
De Jasay and Buchanan share many ideas. They are both methodological individualists, that is, they study society starting from the positive positive observation of individual preferences and choices. Normatively, they believe that no economic or moral value exists outside the preferences of individuals.
In a sense, both de Jasay and Buchanan believe that anarchy is the ideal. De Jasay is not sure that an anarchic society could avoid being taken over by a foreign state. Buchanan sees the liberal contractarian state as protecting “ordered anarchy.” He echoes French philosopher Raymond Ruyer, who, in his 1969 book Éloge de la société de consommation (“In Praise of Consumer Society”), wrote that “real anarchism, feasible and realized … is simply the [classical] liberal economy.” In the same vein, another French classical liberal, Émile Faguet, wrote that “an anarchist is an uncompromising liberal” (Politiques et moralistes du dix-neuvième siècle [“Nineteenth-Century Politicians and Moralists”], 1891).
This suggests another approach to avoiding a definitive choice between de Jasay and Buchanan: the closer we can get to anarchy, the better; if we can’t get the real thing and the state is necessary, it is to produce or finance the few public goods (narrowly defined) that would go unproduced or seriously underproduced under anarchy. In this perspective, paradoxically, the humble role of the state is to maintain and protect as much anarchy as possible.