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As much as anti-statists might want to just do away with government so everything can be left to the free market, the truth is that any genuinely competitive and well-functioning market needs government in order to work in the first place. In fact, as Milton and Rose Friedman point out, the very concept of private property itself couldn’t exist without some kind of overarching authority defining it and establishing the basic ground rules for its use:

No voluntary exchange that is at all complicated or extends over any considerable period of time can be free from ambiguity. There is not enough fine print in the world to specify in advance every contingency that might arise and to describe precisely the obligations of the various parties to the exchange in each case. There must be some way to mediate disputes. Such mediation itself can be voluntary and need not involve government. In the United States today, most disagreements that arise in connection with commercial contracts are settled by resort to private arbitrators chosen by a procedure specified in advance. In response to this demand an extensive private judicial system has grown up. But the court of last resort is provided by the governmental judicial system.

This role of government also includes facilitating voluntary exchanges by adopting general rules—the rules of the economic and social game that the citizens of a free society play. The most obvious example is the meaning to be attached to private property. I own a house. Are you “trespassing” on my private property if you fly your private airplane ten feet over my roof? One thousand feet? Thirty thousand feet? There is nothing “natural” about where my property rights end and yours begin. The major way that society has come to agree on the rules of property is through the growth of common law, though more recently legislation has played an increasing role.

As Stephen Holmes and Cass R. Sunstein put it, there’s “no property without taxation.” They expand on this point:

According to the British philosopher Jeremy Bentham, “property and law are born together and die together. Before the laws there was no property; take away the laws, all property ceases.” Every first-year law student learns that private property is not an “object” or a “thing” but a complex bundle of rights. Property is a legally constructed social relation, a cluster of legislatively and judicially created and judicially enforceable rules of access and exclusion. Without government, capable of laying down and enforcing compliance with such rules, there would be no right to use, enjoy, destroy, or dispose of the things we own. This is obviously true for rights to intangible property (such as bank accounts, stocks, or trademarks), for the right to such property cannot be asserted by taking physical possession, only by an action at law. But it is equally true of tangible property. If the wielders of the police power are not on your side, you will not successfully “assert your right” to enter your own home and make use of its contents. Property rights are meaningful only if public authorities use coercion to exclude nonowners, who, in the absence of law, might well trespass on property that owners wish to maintain as an inviolable sanctuary. Moreover, to the extent that markets presuppose a reliable system of recordation, protecting title from never-ending challenge, property rights simultaneously presuppose the existence of many competent and honest and adequately paid civil servants outside the police force. My rights to enter, use, exclude from, sell, bequeath, mortgage, and abate nuisances threatening “my” property palpably presuppose a well-organized and well-funded court system.

A liberal government must refrain from violating rights. It must “respect” rights. But this way of speaking is misleading because it reduces the government’s role to that of a nonparticipant observer. A liberal legal system does not merely protect and defend property. It defines and thus creates property. Without legislation and adjudication there can be no property rights in the way Americans understand that term. Government lays down the rules of ownership specifying who owns what and how particular individuals acquire specific ownership rights. It identifies, for instance, the maintenance and repair obligations of landlords and how jointly owned property is to be sold. It therefore makes no more sense to associate property rights with “freedom from government” than to associate the right to play chess with freedom from the rules of chess. Property rights exist because possession and use are created and regulated by law.

Government must obviously help maintain owner control over resources, predictably penalizing force and fraud and other infractions of the rules of the game. Much of the civil law of property and tort is designed to carry out this business. And the criminal justice system channels considerable public resources to the deterrence of crimes against property: larceny, burglary, shoplifting, embezzlement, extortion, the forging of wills, receiving stolen goods, blackmail, arson, and so forth. The criminal law (inflicting punishments) and the civil law (exacting restitution or compensation) conduct a permanent, two-front, and publicly financed war on those who offend against the rights of owners.

David Hume, the Scottish philosopher, liked to point out that private property is a monopoly granted and maintained by public authority at the public’s expense. As the English jurist William Blackstone, following Hume, also explained, property is “a political establishment.” In drawing attention to the relation between property and law—which is to say, between property and government—Bentham was making the very same point. The private sphere of property relations takes its present form thanks to the political organization of society. Private property depends for its very existence on the quality of public institutions and on state action, including credible threats of prosecution and civil action.

What needs to be added to these observations is the correlative proposition that property rights depend on a state that is willing to tax and spend. Property rights are costly to enforce. To identify the precise monetary sum devoted to the protection of property rights, of course, raises difficult issues of accounting. But this much is clear: a state that could not, under specified conditions, “take” private assets could not protect them effectively, either. The security of acquisitions and transactions depend, in a rudimentary sense, on the government’s ability to extract resources from private citizens and apply them to public purposes.

Wheelan observes the same thing, noting that national economies without decent governments aren’t exactly known for functioning well:

Government does not just fix the rough edges of capitalism; it makes markets possible in the first place. You will get a lot of approving nods at a cocktail party by asserting that if government would simply get out of the way, then markets would deliver prosperity around the globe. Indeed, entire political campaigns are built around this issue. Anyone who has ever waited in line at the Department of Motor Vehicles, applied for a building permit, or tried to pay the nanny tax would agree. There is just one problem with that cocktail party sentiment: It’s wrong. Good government makes a market economy possible. Period. And bad government, or no government, dashes capitalism against the rocks, which is one reason that billions of people live in dire poverty around the globe.

To begin with, government sets the rules. Countries without functioning governments are not oases of free market prosperity. They are places in which it is expensive and difficult to conduct even the simplest business. Nigeria has one of the world’s largest reserves of oil and natural gas, yet firms trying to do business there face a problem known locally as BYOI—bring your own infrastructure.

By contrast, he continues, good government makes it possible for commerce to be conducted easily and efficiently:

Government lowers the cost of doing business in the private sector in all kinds of ways: by providing uniform rules and regulations, such as contract law; by rooting out fraud; by circulating a sound currency. Government builds and maintains infrastructure—roads, bridges, ports, and dams—that makes private commerce less costly. E-commerce may be a modern wonder, but let’s not lose sight of the fact that after you order khakis from Gap.com, they are dispatched from a distribution center in a truck barreling along an interstate. In the 1950s and 1960s, new roads, including the interstate highway system, accounted for a significant fraction of new capital created in the United States. And that investment in infrastructure is associated with large increases in productivity in industries that are vehicle-intensive.

Effective regulation and oversight make markets more credible. Because of the diligence of the Securities and Exchange Commission (SEC), one can buy shares in a new company listed on the NASDAQ with a reasonable degree of certainty that neither the company nor the traders on the stock exchange are engaging in fraud. In short, government is responsible for the rule of law. (Failure of the rule of law is one reason why nepotism, clans, and other family-centered behavior are so common in developing countries; in the absence of binding contractual agreements, business deals can be guaranteed only by some kind of personal relationship.) Jerry Jordan, former president of the Federal Reserve Bank of Cleveland, once mused on something that is obvious but too often taken for granted: Our sophisticated institutions, both public and private, make it possible to undertake complex transactions with total strangers. He noted:

It seems remarkable, when you think about it, that we often take substantial amounts of money to our bank and hand it over to people we have never met before. Or that securities traders can send millions of dollars to people they don’t know in countries they have never been in. Yet this occurs all the time. We trust that the infrastructure is set in place that allows us not to worry that the person at the bank who takes our money doesn’t just pocket it. Or that when we use credit cards to buy a new CD or tennis racquet over the Internet, from a business that is located in some other state or country, we are confident we will get our merchandise, and they are confident they will get paid.

Shakespeare may have advised us to get rid of all the lawyers, but he was a playwright, not an economist. The reality is that we all complain about lawyers until we have been wronged, at which point we run out and hire the best one we can find. Government enforces the rules in a reasonably fair and efficient manner. Is it perfect? No. But rather than singing the praises of the American justice system, let me simply provide a counterexample from India. Abdul Waheed filed a lawsuit against his neighbor, a milk merchant named Mohammad Nanhe, who had built several drains at the edge of his property that emptied into Mr. Waheed’s front yard. Mr. Waheed did not like the water draining onto his property, in part because he had hoped to add a third room to his cement house and he was worried that the drains would create a seepage problem. So he sued. The case came to trial in June 2000 in Moradabad, a city near New Delhi.

There is one major complication with this civil dispute: The case had been filed thirty-nine years earlier; Mr. Waheed was dead and so was Mr. Nanhe. (Their relatives inherited the case.) By one calculation, if no new cases were filed in India, it would still take 324 years to clear all the existing cases from the docket. These are not just civil cases. In late 1999, a seventy-five-year-old man was released from a Calcutta jail after waiting thirty-seven years to be tried on murder charges. He was released because the witnesses and investigating officer were all dead. (A judge had declared him mentally incompetent to stand trial in 1963 but the action was somehow lost.) Bear in mind that by developing world standards, India has relatively good government institutions. In Somalia, these kinds of disputes are not resolved in the courts.

All the while, government enforces antitrust laws that forbid companies from conspiring together in ways that erase the benefits of competition. Having three airlines that secretly collude when setting fares is no better than having one slovenly monopoly. The bottom line is that all these institutions form the tracks on which capitalism runs. Thomas Friedman, foreign affairs columnist for the New York Times, once made this point in a column. “Do you know how much your average Russian would give for a week of [the U.S. Department of Justice] busting Russia’s oligarchs and monopolists?” he queried. He pointed out that with many of the world’s economies plagued by endemic corruption, particularly in the developing world, he has found that foreigners often envy us for . . . hold on to your latte here . . . our Washington bureaucrats; “that is, our institutions, our courts, our bureaucracy, our military, and our regulatory agencies—the SEC, the Federal Reserve, the FAA, the FDA, the FBI, the EPA, the IRS, the INS, the U.S. Patent Office and the Federal Emergency Management Agency.”

Ultimately, it’s all this government infrastructure – not just the physical infrastructure, but the socio-civil infrastructure as well – that enables our private sector to flourish in the first place. Without government-constructed roads for shipping products, government protection of property rights, government enforcement of contracts between buyers and sellers, government-issued currency that’s both stable and universally accepted, government arbitration of disputes in impartial courts, government checks against monopolization and collusion, and so on, private actors simply wouldn’t be able to do business efficiently. Of course, all this infrastructure has to be paid for – which means that taxes have to be collected – but the crucial point here is that all the private-sector wealth that goes to pay these taxes couldn’t have been accumulated in the first place without the government collecting and spending taxes, because government-funded infrastructure was the very thing that allowed the wealth to originally be produced. In this sense, then, as David Harvey puts it, such government expenditures functionally pay for themselves:

[The] vast infrastructure that constitutes the built environment is a necessary material precondition for capitalist production, circulation and accumulation to proceed. This infrastructure, furthermore, requires constant and adequate maintenance to keep it in good working order.

[…]

It is here that the state […] has to enter into the picture and play a central role. To do this it needs to extract taxes. The theory of productive state expenditures pioneered in Second Empire Paris by the Saint-Simonian financiers and later generalised by [John Maynard] Keynes suggests that the tax base should increase as private capital responds positively to possibilities generated by new infrastructural provisions. The result is a form of state-capital circulation in which state investments not only pay for themselves but also earn extra revenues to be put into more infrastructures.

This goes back to the Georgist point from before, about how a lot of the value held by private property owners comes not from anything they’ve done personally, but from all the positive attributes of their surrounding community. If someone happens to live in a jurisdiction where property rights are well-protected, contracts are properly enforced, and so on, they’ll be able to create a lot more wealth than they’d be able to create in the opposite scenario – even if their own personal efforts are exactly the same in both cases – simply because of all these advantages provided to them by the jurisdiction in which they live. Their government will serve as an income amplifier for them, such that even if they later have to give back some of their earnings as taxes (in repayment for all these advantages they’re being given), they’ll still be better off than they would be if no such government existed – since in the latter case, their overall level of wealth, though untaxed, would be considerably lower. The fact that they’re having to pay taxes is, in David Cay Johnston’s words, nothing but “the price of maintaining the civilization that has made their success possible.”

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