The Public Goods Circular Argument

In our modern, Western world, many justify the state and its policies because of the presupposition that the state—and the state uniquely—is an indispensable service-provider of essential services that could not or would not be provided by the free market or which would be underprovided were it not for the state’s collective provision. This is the public goods argument.

It has become a cliche for defenders of the state to ask critics, especially libertarians, “But without the government, who would build the roads?” It is astounding that it has been easier to convince people to send their children to kill and die in wars, pay exorbitant taxes, see their purchasing power evaporate through inflation, and passively observe general criminal behavior from political elites than to convince people that roads could be built without the state.

While roads and other public infrastructure are considered “public goods,” there are also certain services that have become inextricably linked to the state, such that to not have the state is to not have those services—national defense, collective security, police, courts, etc.

Public goods theory is presented as scientific, value-free economic theory, however, it implicitly smuggles in normative presuppositions that lead to the conclusion that the modern nation-state, and the state alone, must provide certain essential goods and services, which legitimates the state and its actions as necessary and legitimate. Historically, many applications of public goods theory emerged less as neutral demonstrations of state necessity than as retrospective justifications for functions governments had already monopolized.

Hobbesian Theory + Social Contract Theory/Tacit Consent Assumptions + Neoclassical Presuppositions = A Legitimating Myth for the State

Public goods theory—and various arguments made for the state because of assuming it—is a dangerous combination of several fallacious ideas. These errors include 1) Hobbes’s theory of the modern nation-state which argued the necessity and legitimacy of the state because of insecurity; 2) various social contract theories and tacit consent assumptions that argued that people not only need the state but agree with it; and, 3) neoclassical economic assumptions regarding equilibrium as a realistic and normative goal, market failure, and perfect competition. When these fallacious theories are combined, public goods theory becomes apologetic for the state.

Due to the prior assumptions it is even argued that, because someone used public goods—for which he was required to pay through taxation—whatever he successfully produces in such a system comes under some form of collective ownership and the control of the state. Therefore, since the state claims credit for success, the results of success may be legitimately expropriated by the state.

For example, according to Barack Obama and Elizabeth Warren, respectively,

If you’ve been successful, you didn’t get there on your own. You didn’t get there on your own. I’m always struck by people who think, “Well, it must be because I was so smart,” there are a lot of smart people out there. “It must be because I worked harder than everybody else,” let me tell you something, there are a whole bunch of hard-working people out there. If you were successful, somebody along the line gave you some help. There was a great teacher somewhere in your life. Somebody helped to create this unbelievable American system that we have that allowed you to thrive. Somebody invested in roads and bridges. If you’ve got a business, you didn’t build that. Somebody else made that happen. The internet didn’t get invented on its own. (emphasis added)

There is nobody in this country who got rich on his own. Nobody. You built a factory out there, good for you. But I want to be clear, you moved your goods to market on the roads the rest of us paid for, you hired workers the rest of us paid to educate, you were safe in your factory because of police forces and fire forces that the rest of us paid for, you didn’t have to worry that marauding bands would come and seize everything that your factory and hire someone to protect against this because of the work the rest of us did. Now, you built a factory and it turned into something terrific or a great idea, God bless! Keep a big hunk of it. But part of the underlying social contract is you take a hunk of that and pay forward for the next kid who comes along [via the state]. (emphasis added)

Doubtless, many critiques could be made regarding the statements above, however, this article focuses on the argument that the collective provision of public goods is the independent variable in any success. If public goods theory is accepted, then the state is no longer viewed merely as one institution among many within society, but as the indispensable precondition for society itself, the necessary provider of essential collective goods, and the institutional framework upon which production, exchange, order, and security ultimately depend. Combined with social contract and tacit-consent theories, the continued use of state-provided services is then treated as evidence of public consent, political obligation, and the legitimacy of the state’s ongoing interventions.

The Public Goods Circularity

When examining arguments, there are two main issues to look for—inconsistency and/or arbitrariness. In other words, an argument should be internally consistent or free from contradictions and it needs to be justified. One of the most common errors in argument is question-begging, circular argumentation, or a non sequitur (an unjustified leap). While distinguished from one another, these fallacies involve arguments that assume what they seek to prove.

That established, the point of this article is very simple: Public goods theory often assumes what it seeks to establish, namely, that the state is the indispensable precondition of production, even though the state itself depends upon prior production for every resource it possesses. The state has no independent source of wealth and therefore cannot be the ultimate source of the prosperity it claims to enable. In other words, for the state to exist and operate, it must expropriate wealth from the private-productive economy, therefore, it cannot claim to be the ultimate basis of wealth and production.

In a reinforcing circle, the state first expropriates wealth from productive individuals through taxation, then uses a portion of that wealth to provide services, and finally points to the existence of those services as proof that the wealth itself ultimately depends upon the state:

Private individuals create wealth through production and voluntary exchange;The state, by nature, coercively extracts resources from private producers through taxation;The state provides certain services as “public goods” (e.g., roads, national defense, police, courts, collective security), often after monopolizing or crowding out alternative providers;Private individuals utilize these state-provided services despite having already been compelled to finance them;The existence and usage of these taxpayer-funded services are then invoked to justify the state, its interventions, and the claim that productive exchange and value creation could not—or would not—exist absent the state’s provision of “public goods.”

Thus, the productivity presupposed by state activity is rhetorically transformed into evidence of the state’s indispensability.

In Human Action, Mises notes something of the circularity of this type of argumentation regarding capital goods,

History does not provide any example of capital accumulation brought about by a government. As far as governments invested in the construction of roads, railroads, and other useful public works, the capital needed was provided by the savings of individual citizens and borrowed by the government. But the greater part of the public debts was spent for current expenditure. What individuals had saved was dissipated by the government.

Arguments such as those advanced by Obama and Warren implicitly reverse the causal order of production. The state can only provide roads, schools, police, and infrastructure after resources have first been created and accumulated within the productive economy. Yet the resulting public expenditures are then invoked as evidence that private production itself owes its existence to the state.

Such argumentation uses manufactured evidence—state provision after monopolization—to prove the conclusion of state necessity which was assumed in the steps that generated the evidence. Public goods theory then provides an ongoing functional justification for the continued existence, expansion, and legitimacy of the state.

The element of state monopolization is also worth mentioning. The state expropriates private property, monopolizes security, adjudication, and other goods and services, suppresses or crowds out alternatives, and then presents itself as indispensable because no competitors exist.

Summary and Conclusion

To be fair, and as this author has argued before, institutional conditions are key for the development and maintenance of wealth—property rights, freedom of exchange, rule of law, sound money, etc. That said, it is often presupposed that these are uniquely the result of the institution of the modern nation-state. However, these conditions can exist in a context of decentralization, as in Europe and America.

Further, the public goods argument could be one of degree, which would be a spiral not a circular argument. For example, the argument might be that the state does, in fact, depend on wealth and production of the private-productive economy for revenue, but that the collective services the state provides allows for greater wealth production under more stable conditions. That, however, is a far cry from telling taxed producers, “You didn’t build that!” and claiming that they ought to be taxed more.

All that said, while elements of this circularity argument against public goods exist within Austro-libertarian literature—especially in Bastiat, Mises, Rothbard, and Hoppe—and beyond, it seems that the simple circularity argument involved in the state’s simultaneous dependence on the wealth of the private-productive economy and claim that it ultimately enables wealth of the private-productive economy has not been fully expressed. In other words, this topic might be a good one for further research. For example, it is worth noting briefly that public goods theory introduces several questionable or unjustified assumptions:

The neoclassical assumptions of perfect competition, perfect knowledge, equilibrium conditions, and “optimal provision,” from which market “failure” is inferred;The Nirvana fallacy of comparing real-world markets against hypothetical ideal outcomes, treating deviations from theoretical optimality as “failure,” and then inferring the superiority of political intervention despite the state’s own incentive, calculation, knowledge, and coordination problems;That the state—which necessarily derives its resources from the productive economy—is itself the primary basis of wealth creation, production, or social order;That certain goods or services could not, would not, or should not emerge through voluntary institutions absent state provision;That the current monopoly provision of certain services demonstrates the necessity or superiority of monopoly state provision;That state provision itself has not displaced, prohibited, crowded out, or prevented the emergence of competing voluntary institutions;That the use of tax-funded services implies tacit consent to the political order that funds and monopolizes them;That an individual’s inability to imagine a voluntary or market-based solution justifies coercive intervention by the state

These arguments presuppose the necessity of state provision rather than demonstrating it.