Limited Government_An Incoherent Concept

Association for Public Policy Analysis and Management

Limited Government: An Incoherent ConceptAuthor(s): Steven KelmanSource: Journal of Policy Analysis and Management, Vol. 3, No. 1 (Autumn, 1983), pp. 31-44Published by: Wiley on behalf of Association for Public Policy Analysis and ManagementStable URL: http://www.jstor.org/stable/3324003 .Accessed: 24/10/2013 01:27

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Limited Government: Steven Kelman AN INCOHERENT CONCEPT

Advocates of limited government argue that the role of goverment should be limited to preventing the use of coercion in exchanges and stopping people from harming others. They believe that government should not seek to change the distribution of wealth from that arising through voluntary exchange nor to influence the

Abstract preferences people hold. But this view proves to be self- contradictory or incoherent. In order to define coercion and permissible harm, governments must make enormous numbers of determinations about how people are entitled to behave. These determinations, in addition to demanding extensive government activity, will also have important effects on the distribution of wealth and the preferences people hold.

Over the past decade, Americans have conducted a continuing debate over the principles that should define the role of government. Their views have ranged from versions of the welfare state anchored in the experiences of FDR's New Deal to the doctrine of limited government or the minimal state.

This article seeks to analyze the coherence of the doctrine of limited government. By such a doctrine I mean the view that the role of government ought to be limited to preventing the use of coercion in exchanges and stopping people from harming others. Advocates of limited government criticize views that call for government to play a more activist role. In particular, they argue, government ought not change the distribution of wealth or influence the preferences people hold.

These doctrines can be disputed on their own terms. For example, one need not accept their contention that it is wrong to redistribute income. But that is not what I intend to dispute here. As philosophers have long observed, "ought implies can." To suggest therefore that government should, for example, refrain from influencing wealth distribution implies that it can do so. The case I shall make will be twofold. First, I will argue that for government to prevent

Journal of Policy Analysis and Management, Vol. 3, No. 1, 31-44 (1983) ? 1983 by the Association for Public Policy Analysis and Management Published by John Wiley & Sons, Inc. CCC0276-8739/83/040031-14$02.40


Limited Government

coerced exchanges or for government to stop people from harming one another, government must become involved in an enormous range of judgments about ways people are entitled to behave. The requirement that government make such a large set of determinations cannot be reconciled easily with the suggestion that the functions of government are limited, to the extent that "limited" implies "few" or "narrow." The second part of my argument will be that such determinations will themselves influence both wealth distribution and what values people hold. Thus, if government per- forms the functions that advocates of a minimal state themselves concede to government, government cannot avoid doing things that violate the prescriptions of limited government. This makes the very notion of limited government, to use the jargon of philosophers, "incoherent" or self-contradictory.

THE CONCEPT While a classical political philosopher such as Aristotle started by arguing that man is a political animal and that governments were natural, advocates of limited government begin by emphasizing that people undertake a wide range of activities to further their goals without any need for government. Some things they do by themselves; others they undertake in cooperation with others. Social cooperation can be organized without government through the process of voluntary exchange, the process whereby I give you something in order to gain something from you.

Admiration of voluntary exchange as a means of organizing social interaction is a key element of the doctrine of limited government. Voluntary exchange is seen as attractive because it expresses respect for people's right to liberty, for their freedom to choose. Whereas the decisions that government makes almost always are taken in the face of a dissenting minority, voluntary exchange requires the consent of all the parties involved. In this respect, according to the argument, it is superior to political decision-making, even when decisions are made on the basis of majority rule. Admirers see other attractive features in the process as well. Since such exchange makes both parties better off (or else they would not have agreed to the exchange), it cannot fail to increase the total level of utility in society. Voluntary exchange has other wealth-promot- ing features as well. Exchange allows dramatic increases in the productivity of human economic activity and hence of people's wealth. It allows people to specialize, putting production of goods and services into the hands of those best at making them.

Advocates of limited government emphasize that all this activity can occur in a "state of nature" outside of government. Why, then, is government necessary at all? The short answer is that government is needed to enforce against transgressors the rules of human interaction implicit in the voluntary exchange model. In the absence of government, two kinds of transgressions are likely. One such kind is coerced exchange, of which the archetypical example is the mugger who says, "Your money or your life." The mugger, of course, is suggesting an exchange-one hands over one's money and one is

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Limited Government 33

allowed to continue to live-but the suggestion is that such an exchange is not a voluntary one. A second kind of transgression is harmful acts that one person commits against another. The most brutal examples of such harm-doing, of course, are murder or assault. A classic example is the generation of pollution by a factory, which hurts people in the surrounding community. Like coerced exchange, situations in which one person harms another usually proceed without the consent of the victim. They are distinguished from coerced exchange by the fact that they occur simply as the result of one person's unilateral act. Once these transgressions are prevented, private activity can proceed as if government did not exist.

In the eyes of advocates of limited government, the case against activist government is linked to admiration for mutual consent as the basis for human interaction. For government to redistribute wealth would mean that government itself became a source of coercion, forcing people to give up some of their wealth without their consent. Similarly with government efforts to influence values: To urge people to give up the values they hold in favor of the values of others is seen as a blatant form of coercion.

COERCION IN Let us assume one is persuaded by everything that advocates of EXCHANGE limited government argue, including the contention that govern-

ment ought to stick to preventing coerced exchange. A difficulty nevertheless remains: Government must determine which exchanges are coerced so that it knows where to intervene and where to restrain itself.

The problem is that, while observation can establish that an exchange has taken place between people, such observation will not by itself establish whether an exchange is voluntary or coerced. We can see somebody giving a bookseller $14.95 in exchange for the most recent Robert Ludlum novel. We can see a mugging victim giving a mugger a wallet in exchange for the withdrawal of a gun from the victim's back. But seeing these things does not itself establish that one exchange is voluntary and the other not. Criteria are therefore necessary to allow government to distinguish between cases of voluntariness and of coercion.

Developing such criteria is not easy. Take a case that is more ambiguous than buying a Ludlum novel or being mugged. A man falls off a dock and is drowning. Another man comes along and sees a life buoy nearby. In response to the cries of the drowning man, the man on the dock says he will throw the buoy, but only if the drowning man agrees to pay $10,000. Is the agreement to pay $10,000 a voluntary or a coerced exchange? Or take the case of the defendant indicted for a crime. The prosecutor offers a choice: He will let the man plead guilty to a lesser offense, or else he will try the defendant for the graver crime for which he has been indicted. Is acceptance of such a plea bargain voluntary or coerced? Or, finally, take the situation of an unskilled worker who faces the choice between starvation and accepting a poorly paying job, or a choice


34 Liited Government

between a poorly paying job and a slightly better-paying one with significant safety hazards. Are decisions to take these jobs voluntary or coerced?

When examining the Ludlum and mugger cases, the distinction between voluntary and coerced exchange-the one so attractive, the other so unattractive-appears clear. When examining these other, more controversial examples, the distinction-and hence the guidance to government about when it should intervene-is less clear.

At first blush, a number of ways of distinguishing between exchanges that are voluntary and those that are coerced seem feasi- ble; but on closer inspection, the distinctions break down. For instance:

People have a choice in the Ludlum case, but no choice in the mugger case. To say that somebody does not have a choice in a situation is to say that he could not have done otherwise. When somebody with a gun says, "Your money or your life," the victim has physical control over his bodily movements. He takes the wallet out of his pocket or he fails to resist when the mugger grabs it. Could the mugging victim have done otherwise? Certainly he could have-he could have refused to hand over his wallet.1 Indeed, some mugging victims do make that very choice. To be sure, refusing to hand over one's wallet subjects one to the risk of injury or death. But there is nothing in the meaning of the word "choice" itself that implies all choices need be pleasant. Indeed, the decision to hand over a wallet to a mugger can very well resemble the process of rational choice, at least in a formal sense. One weighs the alternatives and their consequences, and one then makes a judgment about which alternative generates maximum value under the circumstances.

Both parties become better off in the Ludlum case, but only one benefits in the mugger case. Voluntary exchange is typically repre- sented as an example that leaves both parties better off. In the Ludlum case, the book buyer prefers the novel to $14.95; and the book seller prefers $14.95 to the novel. In the mugging case, by contrast, it would appear that only the mugger becomes better off. The victim has lost his wallet and does not have anything in exchange for it.

The problem with this argument, however, is the time horizon being considered. If one focuses on the actual moments of interaction between mugger and victim, then the victim does indeed become better off than he would otherwise have been by giving the mugger his wallet. He is released from the risk of being shot at. Indeed, just as with any exchange that is ordinarily regarded as voluntary, the victim presumably would not have agreed to hand over his wallet if he did not think that doing so made him better off than otherwise.

In the Ludlum case both parties face pleasant choices, while in the mugger case the victim faces a choice that has no pleasant side. Those who write lyrically about the virtues of voluntary exchange typ-



ically use pleasant choices as their preferred examples (should we spend money on movies or restaurants?) while using unpleasant situations as their examples of involuntary choice. So it is easy to think this is the difference. However, those that write about voluntary exchange would ordinarily insist that the case of the unskilled worker, mentioned earlier, should be regarded as a voluntary exchange even though few people would think of it as involving a pleasant choice. In that vein, two economists observe: "Individuals assuming risks receive wage premiums for accepting those risks. The worker chooses his level of safety for himself."2

Although these distinctions therefore fail, some others come closer to surviving, and begin to suggest an appropriate way to get at the distinction between voluntariness and coercion.

One way of distinguishing the mugger case from the Ludlum case is by the fact that it involves physical force or the threat of force. If force is what distinguishes voluntary from coerced exchange, then the drowning man and unskilled worker cases, which do not involve force, are seen as being voluntary exchanges.

This answer is seen to be inadequate if one asks why the use or threat of force makes an exchange coerced. The response, I believe, will have to be that force makes an exchange coerced because people are not entitled to use force in exchanges. That is a defensible position, but it moves us into the realm of debate about ways people are entitled to behave. And it opens the question of why the use or threat of acts other than force never makes an exchange coerced.

Another proposal for distinguishing voluntary from coerced exchange is that we look at the situation of a person just after he is presented with an alternative. When the mugger says, "Your money or your life," you wish he had never presented the alternative, that he had never uttered those words at all. If, by contrast, a person prefers having the alternatives, then the choice he makes is voluntary.3 You are happy to have been put into a position in which you have the choice of buying a Ludlum novel. And it is argued that the proposed criterion can be applied to the controversial situations as well. One can argue that the worker prefers that an employer offer a wage even though low, so long as it will keep the worker from starving. Hence, the choice to accept the job is voluntary. The drowning man situation would be similar.

I believe this effort at suggesting a distinction also fails. Imagine a world in which people were entitled to take pot shots at others as they walk down the street. The mugger would now be saying that you have a choice between giving him your wallet and having him exercise his entitlement to shoot. He might choose to never open his mouth. He might simply exercise his entitlement and shoot you. If he were entitled to shoot, you would rather have him give you a chance to hand over your money than just have him shoot you without warning.

Clearly, therefore, it is impossible to analyze whether a certain exchange is voluntary without reference to judgments about how people are entitled to behave toward others.4 The reason muggers are engaged in coercion is that people are not entitled to use force or the threat of force to bring about exchanges. The controversial cases


Limited Government

are hard precisely because there is disagreement about whether all parties are behaving in ways to which they are entitled. If the passerby has a duty to throw the drowning man a buoy, he is not entitled to refrain from throwing the buoy. His statement, "I won't throw you the buoy unless you give me $10,000," takes on the qualities of the mugger's "Your money or your life," and the exchange between the drowning man and the passerby is not voluntary. In the case of the employer and the starving worker, if all people are entitled to some minimum standard of living, then others (including possible employers) have a duty to contribute to a situation in which starvation is not an alternative that the worker faces.

If a judgment must be reached about whether a person is behaving in a way he is entitled to behave before it can be decided whether a certain exchange is voluntary, then such determinations are a precondition for a limited government to undertake one of its permissible functions. If one leaves entitlement questions undecided, the entire notion of voluntary exchange would collapse, since the ability to distinguish it from coerced exchange would disappear. People will frequently have different opinions about these issues. "Government" is simply a name for the institutions empowered authoritatively to make such determinations. It does not make sense, then, to conceptualize voluntary exchange as an institution existing outside of government. Exchange exists outside government, but absent government, one cannot distinguish between mer- chants and brigands.

The inescapable necessity for determining how people are entitled to behave in order to delimit voluntary exchange makes the doctrine of limited government incoherent. The range and number of such determinations are huge, inasmuch as they must include any act that one person might be expected to perform in order to get another to change his behavior. The sheer scope of such decisions means that a government charged with such determinations already has a pervasive role; to describe such a government as limited would be ludicrous.

In addition, such decisions cannot avoid affecting the preferences of people, a subject that government, according to advocates of limited government, must avoid. That mugging is illegal affects people's attitudes toward it; the determination stigmatizes mugging and encourages values that respect the right to be free of the threat of bodily harm. If a determination is made that people are not entitled to let a man drown when a buoy is at hand, that determination will affect the way people believe they should act.5 There are disagreements about the empirical magnitude of such influence, but few question its existence.6

These determinations also affect the distribution of wealth. By saying that a person is not entitled to take over the wallet of another by force, the value of physical strength is reduced.7 The effect on the wealth position of the strong is just as certain as if a creative person were deprived of the right to sell a bright idea. If a passerby has a duty to rescue a drowning man, he is deprived of his ability to

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extract a price for rescue. If a worker who would otherwise starve is entitled to a minimal standard of living, then those threatened by starvation become better off, while others become worse off since they are obligated to pay a share toward preventing that starvation.

These determinations, with necessary effects on preferences and on the distribution of wealth, take place not because of a separate decision that government is justified in influencing preferences or the distribution of wealth. They emerge as necessary correlates of the very effort to distinguish voluntary from coerced exchange, an effort that is required in order for government to do what even advocates of limited government agree it should.

One position it is always possible for government to take is that individuals are entitled to what they want to. In such instances, it can be argued that government has made no determination at all, but rather that a natural liberty, existing in a state of nature, has been respected. In other words, the suggestion is that a person does not need government to grant him liberty-he can do what he wants to do without government. Liberty, in this view, is natural; a gov- ernmental position becomes a determination only when it leads to a restraint.

Still, a problem exists. People may have the capability to act as they wish in a state of nature; but that capability does not imply an ethical entitlement to liberty of action. Indeed, among the acts that people are capable of undertaking in a state of nature are murder or physically preventing others from acting as they wish. The recognition of an entitlement to liberty of action in a given situation trans- forms physical capability into ethical judgment. It is this recognition that government makes.

PREVENTING HARM The argument regarding the role of a limited government in preventing harm is similar to that relating to coerced exchange. It is a delusion to suppose that government is entitled to prevent people from harming others while still suggesting that its functions are limited.

"Harm," as ordinarily understood, occurs in numerous ways: * I open a new food store in a town in which you previously had the

only food store. Your business goes down. * I develop a new product (say, transistors) that serves as a sub-

stitute for the product you make (say, vacuum tubes). Your business collapses.

* I wear a pink shirt to work. You are nauseated every time you pass me in the hall.

* I paint my house bright purple in a neighborhood in which the prevailing colors are sober shades of gray and white. Adjacent property values decline.

* I play loud music in my apartment until 2:00 a.m. All the neigh- bors lose sleep. * I set up a factory that belches filthy smoke. Some in the surround-

ing area contract lung cancer.


Limited Government

All of these cases involve people harming others. That creates a dilemma for advocates of limited government. They are willing to have the government prevent harm. But if government really sought to prevent all harm, this would be a recipe for an oppressively overbearing government, a state that was anything but minimal. It will hardly do to say that the competitor case or pink shirt case does not really involve harm, just because most people would probably say that the behavior should be permitted. A person driven out of business by an invention that renders his own product obsolete was once a rich man, perhaps, and now he is bankrupt. Indeed, there are English court decisions from the eigh- teenth century in which customers who deserted established businesses to new competitors had to pay damages to the firms with which they had previously dealt.8

The argument for permitting competitors to drive established firms out of business or for people to be able to wear pink shirts that disgust others has to be not that no harm is caused but that the harm is permissible. This way out of the dilemma for advocates of limited government is to substitute the statement that government may prevent people from harming others with the statement that government must define which harms are permissible. And to dis- charge that function, government will need to make an enormous number of determinations about ways people are entitled or not entitled to behave. The range of determinations is even wider than in the case of those required to determine whether an exchange is voluntary or coercive. It includes anything that affects others in any way-essentially the entire gamut of human behavior. And the determinations that are made have wealth and preference impacts.

PROPERTY RIGHTS IN LAW AND ECONOMICS

My approach dovetails with that of economists such as Ronald Coase and Harold Demsetz who have applied microeconomic theory to the law, particularly to tort and contract law.9 These economists have been the connection, which was missing in earlier work by economists, between the specification of property rights and the nature of permissible harm that prevails in any society.?1

The legal concept of a property right is a recognized claim to use property without securing permission from others. But the question remains: In what ways may I use my property? The unreflective answer is, in any way that I choose. If I own a television set, according to that view, I am entitled to watch it twenty-four hours a day or let it gather dust in the attic, to look at Masterpiece Theater or Laveme and Shirley. On reflection, however, that view proves too simple. My property right in a television set does not entitle me to use it as a triggering device for a bomb. And, perhaps, it does not entitle me to play the set very loudly in the middle of the night in an apartment building with thin walls. The specification of property rights will, then, stipulate the ways that people are entitled to behave.

Perhaps the single most influential work dealing with this issue of specification of property rights is Ronald Coase's "The Problem of

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Social Cost," an article that revolutionized how economists thought about externalities.1 In that article, Coase sought to suggest that it might not be necessary for government to have even as much of a role in the lives of people as traditional advocates of limited government had regarded as the irreducible minimum. What came to be known as the "Coase theorem" made a startling claim, namely that under certain defined conditions, the decisions of governments on ways people were entitled to behave would have no effect on their ultimate behavior. According to Coase, for example, government's decisions on whether a factory was entitled to pollute might not affect whether the factory eventually polluted.

Coase's crucial observation was that if government entitles me to harm a stranger, that fact may create an incentive for the stranger to enter into an exchange with me that would avoid the harm. If government determines that I am entitled to play my stereo loudly at 2 a.m., those who are disturbed have an incentive to offer to give me something in return for my agreement not to play the stereo. If others are willing to pay more to get me not to play my stereo than it is worth for me to play it, then the basis for an agreement exists. If others are unwilling to pay my price, I reserve the right to continue to play.

This chain of reasoning led Coase to his conclusion that initial determinations of how people are entitled to behave will not influence their final behavior. Once government had made some determination, people will sell their initial entitlements to the extent that others are prepared to pay the price. In the end, the final pattern of behavior will be the same as if the government had defined the entitlements in a different way.

But Coase's framework, which he himself used to argue for the unimportance of government's role, can be used to derive the conclusion that government will have a great deal to do, and that in the process it will inevitably influence the distribution of wealth and the values people hold.

Coase would agree that the voluntary exchanges he discusses frequently will not occur, namely, when the costs of undertaking the exchange exceed the gains to be derived from it. If an artist living in an isolated village is willing to sell me his new painting for $500 and I would be willing to pay as much as $600 for it, it may appear as if a basis for exchange exists. But if it would cost me $200 to get to his village, that basis disappears. By the same token, the costs of organizing voluntary exchange may prove especially high in a number of important types of cases involving prospective harm. It is costly, for example, to organize voluntary exchanges between polluters and their victims, drunk car drivers and those they threaten, people with unpopular views and those they offend. Coase would grant that in a world of high transaction costs, where voluntary exchanges will not take place, government determinations will affect the behaviors that finally do emerge. He would concede that such determinations are necessary in those instances. And since he would concede that such instances are common, government has, even in a Coasian world, a great deal to do.


Limited Government

Moreover, Coase would agree that these determinations by government affect the distribution of wealth. In Coase's world of voluntary exchange, one party is seen as receiving payment from another in order to give up an entitlement. If the potential victims of pollution must pay the polluter to stop, the victims are poorer and the polluters richer. To be sure, Coase trumpets his conclusion that government's initial determinations will have no influence on behavior, while whispering the observation that different initial entitlements will affect the wealth of the parties. But, of course, the acknowledgment that initial determinations by government will have an effect on wealth is no modest cadenza. It is an affirmation of the notion that even the very limited government in Coase's model, whose determinations do not influence behavior, nonetheless influence wealth distribution.

Coase does not discuss whether, in his world of voluntary exchanges, initial determinations also affect the individual preferences. But the question has been explored by others, with the conclusion that preferences are indeed affected.2 The link is created by what has come to be called the "offer-asking problem," that is, the fact that people who are asked to give something up demand a higher price than what they would pay for securing that same thing in the first instance. For example, a number of experiments have been conducted in which respondents have been shown two pic- tures of a beautiful vista, one clear and one in which visibility was clouded by pollution. Some of the respondents were asked to imagine that they were living in the clouded environment and to state how much they would pay to clean it up. The others were asked to imagine that they were living in the clean environment and to state how much they would demand in payment in order to allow it to be polluted. There were significant differences between the two amounts; respondents demanded more to give up the clean environment than they were willing to pay in order to clean it up.13

These results are devastating for the Coase theorem, since they suggest that even in the absence of transaction costs, final behavior may well differ depending on initial determinations, because the offer-asking difference creates a tendency for people to be unwilling to trade away entitlements. Thus, there is likely to be less pollution if victims of pollution have an initial entitlement to freedom from pollution. But there is another implication of the offer-asking phenomenon that is especially relevant here. From the example it seems clear that the initial entitlement embodied in the government's specification of property rights affects the strength of people's preferences, a fact reflected in the difference between offer prices and asking prices. If government is inescapably involved in the business of determining such initial entitlements, as Coase concedes, and if such determinations inevitably influence people's preferences, then government inevitably influences preferences.

It is sometimes argued that the wealth effects of initial entitlements are limited to the period when the entitlement was first granted, exercising only a one-time effect on the distribution of wealth.14 Say that it is decided that airlines are entitled to fly noisy

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planes. Such a determination makes airlines richer and residents near airports poorer. But, according to the counterargument, only the existing occupants will suffer a loss; thereafter, others will not suffer. For house prices near an airport will decline. Then people who come to live near the airport will have spent less for their housing than people buying similar housing in quiet areas.

The fact that property values are reduced for all subsequent buyers does reduce the long-term effects on the distribution of wealth that are generated by the government's decision to allow noisy planes. But the effect by no means disappears. First, in many determinations that involve ways people may behave toward each other, the only "property" whose value is affected by the determination is one's own self. Since human beings do not need to buy themselves, however, this changed value cannot be reflected in the acquisition price of the affected "property." Second, people frequently start new activities-new businesses, new uses of land, and so forth-which generate wealth. If people undertaking new activities are not entitled to behave in certain ways, the wealth obtainable by such new activities is reduced. If they are not so constrained, the absence of constraint may decrease the wealth of others. Third, in a dynamic society, many new behaviors will appear about which determinations must be made for the first time. One thinks of decisions regarding behavior of nuclear power plant owners or of those engaged in genetic engineering experiments. This makes the process of establishing entitlements an ongoing one. Finally, determinations may change over time. At one time the determination might be made, for instance, that factories should be entitled to pollute, and at another time the opposite conclusion might be reached. When conclusions change over time, new determinations, with attendant wealth effects, will emerge.

ETHICS AND There is an irony in all this. Much of the pioneer work regarding the ENTITLEMENTS importance of government determinations in affecting how people

are entitled to behave has come from scholars such as Coase and Demsetz. The important role that these determinations play, I have argued, leads to the view that the doctrine of limited government is an incoherent one. Yet these very scholars generally endorse the doctrine of limited government.

The paradox is easily explained. These scholars failed to recog- nize that when governments determine entitlements, difficult issues of moral philosophy are involved. Instead, the scholars simply assumed that the grounds for making these decisions should be the maximization of net benefits: Entitlements should be given to those parties who would be willing to pay the highest price for them. This assumption is sometimes openly stated. But often it is hidden in dependent clauses and other side remarks which suggest that the supposition is so deeply ingrained in the minds of the authors that they feel no need to discuss it. The "property rights" scholars can reconcile their insights about the pervasiveness of government's role with their views on limited government by tak-


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ing the view that government determinations should mimic what the market would do if transactions were possible. Such determinations based on maximizing net benefits place resources (in this case the entitlement to undertake certain behaviors) in the hands of those who value them the most, just like voluntary exchange. Oper- ating on that principle, government does a great deal, but its determinations are guided by market principles.

There are numerous problems with this view. It must be kept in mind that the formula requires only answering a hypothetical question about which party would have been willing to pay more for the entitlement. The formula does not require actual payment. Thus, even if this test is used to determine entitlements, the beneficiaries receive unpaid-for wealth. Moreover, these determinations still affect preferences.

In addition, use of the benefit-cost test to determine entitlements may lead to indeterminate results because of the offer- asking problem discussed earlier." According to the benefit-cost test, one asks whether an entitlement is worth more to Bill or to Joe. Say Bill would be willing to pay only $10 for clean air if he didn't already have it, but would demand to be paid $100 to give it up. Say Joe would be willing to pay $20 to pollute the air and would demand $40 to give up that entitlement. For whom is the entitlement worth more? It depends on to whom it was assigned in the first place. And if that is the case, the benefit-cost formula cannot be used to make that determination.16

The most important point, however, is that in proposing an answer to the question "How should entitlements determinations be made?," one is posing an ethical question. And the answer that property rights theorists have given is only one of several possible answers to the question, the answer given by utilitarians. But utilitarianism is only one view-probably a minority view-among moral philosophers.

It would be impossible even to attempt a summary of the inten- sive philosophical debates over utilitarianism. Critics argue that utilitarianism does not pay sufficient attention to individual human beings. Since what utilitarians seek to maximize is satisfaction, people are reduced to mere vessels for satisfaction. "Persons do not count as individuals. .. any more than individual petrol tanks do in the analysis of the national consumption of petroleum."17 Except for the incentive effects involved in the choice, for example, a utilitarian would be indifferent as between distribution of a given amount of satisfaction to a murderer or to a peaceful citizen. Critics of utilitarianism contend that considerations of rights and of justice need to be part of ethical judgments as well as considerations of the maximization of net benefits. People may, for instance, have a right to a certain level of life-saving efforts or to a minimum standard of living, even if respecting those rights does not maximize net benefits. Debates such as these will be the stuff of political controversies over the government's determinations regarding entitlements.18

As was noted at the beginning, the case for limited government is based in the first instance on a number of ethical propositions. The normal tack of critics has been to dispute those propositions. My



tack has been different: to argue that the premises of the case for limited government do not stand up. In order for government to undertake the tasks that advocates of limited government assign it, government must be able to distinguish between coerced and voluntary exchange, and between unacceptable and permissible harm. To define these distinctions, government cannot avoid making a myriad of determinations about how people are entitled to behave. And the determinations will inevitably influence wealth distribution and preferences. The program for limiting government so that it does not influence individual preferences or the distribution of wealth simply collapses as incoherent. It violates its own principles. The interesting debates about public policy are not over whether government should intervene in our lives, but how.

STEVEN KELMAN is an Associate Professor at the John F. Kennedy School of Government, Harvard University.

NOTES 1. I ignore here the general issue of free will. 2. Nichols, Albert, and Zeckhauser, Richard, "Government Comes to the

Workplace: An Assessment of OSHA," The Public Interest (Fall 1977): 46. 3. See Nozick, Robert, "Coercion," in Philosophy, Science and Method,

Morgenbesse, Sidney, et al., Eds. (New York: St. Martin's Press, 1969). 4. See Wertheimer, Alan, "The Prosecutor and the Gunman," Ethics, 89

(April 1979). 5. One need not believe that the only function of ethical statements is to

motivate behavior in order to see a connection between ethical statements and motivation; one may have this view even if one believes that ethical statements are statements about truths. For a discussion, see Frankena, William K., "Obligation and Motivation in Recent Moral Philosophy," in Readings in Ethical Theory, Sellars, Wilfred, and Hospers, John, Eds. (Englewood Cliffs, NJ: Prentice-Hall, 1970), 2nd ed.

6. For a discussion of the point with particular reference to environmental policy, see Kelman, Steven, What Price Incentives?: Economists and the Environment (Boston: Auburn House, 1981), especially pp. 44-53.

7. This argument is made by Kennedy, Duncan, and Michaelman, Frank, "Are Property and Contract Efficient?" Hofstra Law Review, 8 (Spring 1980): 720.

8. Lieberman, Jethro, "The Relativity of Injury," Philosophy and Public Affairs, 7 (Fall 1977): 71.

9. For an introduction to the discipline of "law and economics," see Posner, Richard, Economic Analysis of Law (Boston: Little Brown, 1977), 2nd ed.; see also Demsetz, Harold, "Toward a Theory of Property Rights," American Economic Review, 57 (May 1967).

10. For the earlier approach, see Pigou, A.C., The Economics of Welfare (New York: AMS Press, 1978). I use the phrase "entitlements determinations" rather than "specification of property rights" partly because the phrase "property rights" for most people has a more narrow meaning, and partly because use of the word "rights," as I will note later, has implica- tions for the grounds on which determinations should be made.

11. Coase, Ronald, "The Problem of Social Cost," Journal of Law and Eco- nomics, 3 (October 1960).

12. This argument is based on Kelman, Mark, "Production Theory, Con- sumption Theory, and Ideology in The Coase Theorem," Southern Cal- ifornia Law Review, 52 (March 1979).


44 Limited Government

13. See, for instance, Rowe, Robert, et al., "An Experiment on the Economic Value of Visibility," Journal of Environmental Economics and Manage- ment, 7 (March 1980); see also Thaler, Richard, "Toward a Positive Theory of Consumer Choice,"Journal ofEconomic Behavior and Organi- zation, 1 (1980).

14. For instance, Demsetz, Harold, "Wealth Distribution and the Owner- ship of Rights," Journal ofLegal Studies, 1 (1972).

15. See above, p. 1302. 16. Duncan Kennedy makes this point in "Cost-Benefit Analysis of Entitle-

ment Problems: A Critique," Stanford Law Review, 33 (February 1981): 422-429.

17. Sen, Amartya, and Williams, Bernard, "Introduction," in Utilitarianism and Beyond (Cambridge: Cambridge University Press, 1982), p. 4.

18. For further discussions of utilitarian and nonutilitarian systems of nor- mative ethics, see, e.g., the articles in ibid., Smart, J.J.C., and Williams, Bernard, Utilitarianism: For and Against (Cambridge: Cambridge Uni- versity Press, 1973); and Brandt, Richard B.,EthicalTheory (Englewood Cliffs, NJ: Prentice-Hall, 1959), Chaps. 15-17.


Article Contentsp. [31]p. 32p. 33p. 34p. 35p. 36p. 37p. 38p. 39p. 40p. 41p. 42p. 43p. 44

Issue Table of ContentsJournal of Policy Analysis and Management, Vol. 3, No. 1 (Autumn, 1983), pp. 1-173Front MatterInfluencing Retirement Behavior: A Key Issue for Social Security [pp. 1 - 13]Unintended Consequences: Regulating the Quality of Subsidized Day Care [pp. 14 - 30]The Governing Art in Theory and PracticeLimited Government: An Incoherent Concept [pp. 31 - 44]Government Allocation of Property Rights: Who Gets What? [pp. 45 - 61]

Markets in Regulated IndustriesThe Postal Service: Economics Made Simplistic [pp. 62 - 73]Airline Deregulation: What's behind the Recent Losses? [pp. 74 - 89]

When Local Participation Helps [pp. 90 - 105]InsightsPublic Management and Private Management: A Diminishing Gap? [pp. 107 - 115]Evaluation, Thaumaturgy, and Multiattribute Utility Measurement [pp. 115 - 120]What Averages Don't Reveal about Real Income Growth [pp. 120 - 125]

ReflexionsPension Plan Equity: The Case against a Gender Classification [pp. 126 - 129]Pension Plan Equity: The Unintended Consequences [pp. 129 - 134]

Case Notes [pp. 135 - 137]Book NotesEducationuntitled [p. 139]untitled [p. 139]untitled [p. 140]

Energyuntitled [p. 140]untitled [pp. 140 - 141]untitled [p. 141]untitled [p. 141]

Environmentuntitled [pp. 141 - 142]untitled [p. 142]untitled [pp. 142 - 143]untitled [p. 143]untitled [p. 143]untitled [pp. 143 - 144]untitled [p. 144]untitled [p. 144]

Healthuntitled [pp. 144 - 145]untitled [p. 145]untitled [p. 145]untitled [p. 146]untitled [p. 146]

International Relations/Economics and Defense Policyuntitled [pp. 146 - 147]untitled [p. 147]untitled [p. 147]untitled [pp. 147 - 148]untitled [p. 148]untitled [p. 148]

Laboruntitled [pp. 148 - 149]untitled [p. 149]untitled [pp. 149 - 150]

Law and Administration of Justiceuntitled [p. 150]untitled [p. 150]untitled [pp. 150 - 151]untitled [p. 151]

Methodologyuntitled [p. 151]untitled [pp. 151 - 152]untitled [p. 152]untitled [p. 152]

Organizational and Bureaucratic Politicsuntitled [pp. 152 - 153]untitled [p. 153]untitled [p. 153]untitled [pp. 153 - 154]

Regulationuntitled [p. 154]untitled [p. 154]untitled [pp. 154 - 155]untitled [p. 155]

Science and Technologyuntitled [p. 155]untitled [p. 156]untitled [p. 156]untitled [pp. 156 - 157]

Social Policyuntitled [p. 157]untitled [p. 157]untitled [p. 158]untitled [p. 158]untitled [pp. 158 - 159]

Urban Policyuntitled [p. 159]untitled [p. 159]untitled [pp. 159 - 160]untitled [p. 160]untitled [p. 160]untitled [pp. 160 - 161]

Working Papers [pp. 163 - 173]Back Matter

Limited Government_An Incoherent Concept

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