21 November, 2007


(Courtesy of the contributors of the MDU online casefile)

1. The philosophy behind it

2. Free-riders and Harm Principle (AKA when Government involvement is a 'good thing')

Every individual has a unique utility function. Whilst there are many things which overlap (water, food, sex, shelter etc) even amongst those there will be difference as to prioritisation and beyond those there is a great deal of difference. Each individual is best placed to know and fulfill their own utility function. Whilst someone might love to be spanked whilst eating mushrooms, for other people it's not so fun. Humans will always act in a way whereby they gain some utility and will tend to be utility maximisers.

eg1: Mother Theresa was acting because she gained utility through helping people, wanted to go to heaven, and gained utility from people going 'aren't you a good person'.

eg2: The father who rushes into a burning building to save his son (and dies in the process) will have temporarily gained the utility of 'being good'. It also meant he didn't suffer a loss of utility by the death of his son.

Everybody has such a different function, it is impossible to lump people together in groups. The basis of the government of society must therefore be the individual. 'Society' or 'Government' is no more than the sum of its parts, it is still merely a collection of individuals. Because individuals can be both wise and stupid, government suffers from the same failings. There is therefore no rational reason why a government would be better at making decisions for person X than person X would be at making those decisions himself. (Exceptions apply to children and the mentally ill on the basis they are not rational. It is assumed rationality is gained through maturity and education).

Society is 'good' when the maximum possible number of people are happy and the minimum number of people are unhappy. If every individual acted solely in their own interests, assuming the majority of people can fulfill their functions without acting negatively on someone else, society's overall utility would be maximised. To quote Smith; "It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest".
In short, therefore, the government is no better at deciding what makes us happy than we are. We tend to act as rational agents. The government's role should therefore be restricted to facilitating this. The government has a role in educating and looking after children (to make them into rational adults), increasing information in society to allow people to make free choices, stopping free riders and acting in the spirit of the harm principle.

Free riders: Everyone knows they should act to help the environment, but everyone relies on someone else to do it and intends to gain the benefit without bearing any of the cost. The same applies to defense spending. If the government didn't take charge of it, everyone would assume someone else would. Further, on an island like Britain (planes don't exist), people living on the coast may be more inclined to spend on defense, and people inland less. The people inland would be free-riding as they gain the same benefit but pay less of the cost.

These sort of "external" costs can only be evaluated and mitigated by governmental bodies. The environment is a perfect example:

Let's say Company X and Company Y both make competing widgets, of similar quality. They can make these widgets in an environmentally-sound method for £1 each, or using a production method that harms the environment but only costs 50p. If X decides, of their own dedication to environmental protection to use the former method, they protect the environment, but their product costs twice what Y's does. Consumers, not realising the full costs of the product, buy Y's product, because it's cheaper for the same quality.

Eventually, X goes bankrupt, Y prospers, and the environment gets ravaged. There is no incentive for Y to use the better method, because not doing so gives them a huge competitive advantage over X. In this case, the government should mandate that both companies must use the environmentally-better production method. This removes the financial incentive to pollute, and the full cost of the product is borne by the companies, and-in turn-the consumer.

Harm Principle: The removal of someone's liberty is seen as a very large harm as it lessens their chance to maximise their utility function. However, sometimes their actions have such negative effects on other people, they have to be stopped. Thus, a government has a duty to step in at this point as X(criminal) is harming Y's chance to maximise his own utility. Sometimes a harm is clear (murder, rape, bike theft), other times less clear (invasion of privacy).

Final Thought

Further reading:

J.S. Mill: On Liberty (C19th)

M. Friedman: Capitalism and Freedom (C20th)

J. Locke: Two Treatises on Government (C18th)

F. Hayak:
The Constitution of Liberty (C20th)

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