You are on page 1of 15

Association for Public Policy Analysis and Management

Limited Government: An Incoherent Concept


Author(s): Steven Kelman
Source: Journal of Policy Analysis and Management, Vol. 3, No. 1 (Autumn, 1983), pp. 31-44
Published by: Wiley on behalf of Association for Public Policy Analysis and Management
Stable URL: http://www.jstor.org/stable/3324003 .
Accessed: 24/10/2013 01:27
Your use of the JSTOR archive indicates your acceptance of the Terms & Conditions of Use, available at .
http://www.jstor.org/page/info/about/policies/terms.jsp

.
JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide range of
content in a trusted digital archive. We use information technology and tools to increase productivity and facilitate new forms
of scholarship. For more information about JSTOR, please contact support@jstor.org.

Wiley, Association for Public Policy Analysis and Management, John Wiley & Sons are collaborating with
JSTOR to digitize, preserve and extend access to Journal of Policy Analysis and Management.

http://www.jstor.org

This content downloaded from 138.25.78.25 on Thu, 24 Oct 2013 01:27:38 AM


All use subject to JSTOR Terms and Conditions

LimitedGovernment:
AN INCOHERENT
CONCEPT

Steven Kelman

Advocatesof limited governmentargue that the role of goverment


should be limited to preventingthe use of coercion in exchanges
and stopping people from harming others. They believethat
governmentshould not seek to change the distribution of wealth
from that arising through voluntaryexchange nor to influence the
Abstract preferencespeople hold. But this view proves to be selfcontradictoryor incoherent.In orderto define coercion and
permissible harm, governmentsmust make enormous numbersof
determinationsabout how people are entitled to behave. These
determinations,in addition to demanding extensivegovernment
activity, will also have importanteffects on the distribution of
wealth and the preferencespeople 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

This content downloaded from 138.25.78.25 on Thu, 24 Oct 2013 01:27:38 AM


All use subject to JSTOR Terms and Conditions

32

LimitedGovernment

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 performs 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.
THECONCEPTWhile 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.
Admirationof 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-promoting 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

This content downloaded from 138.25.78.25 on Thu, 24 Oct 2013 01:27:38 AM


All use subject to JSTOR Terms and Conditions

LimitedGovernment

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 government 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

This content downloaded from 138.25.78.25 on Thu, 24 Oct 2013 01:27:38 AM


All use subject to JSTOR Terms and Conditions

34

Liited Government

between a poorly paying job and a slightly better-paying one with


significant safety hazards. Aredecisions 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 feasible; but on closer inspection, the distinctions break down. For
instance:
Peoplehavea choice in theLudlumcase, 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, "Yourmoney 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 muggercase. Voluntary exchange is typically represented 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 Ludlumcase both parties face pleasant choices, while in the
muggercase the victim faces a choice that has no pleasantside. Those
who write lyrically about the virtues of voluntary exchange typ-

This content downloaded from 138.25.78.25 on Thu, 24 Oct 2013 01:27:38 AM


All use subject to JSTOR Terms and Conditions

LimitedGovernment

35

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 workerchooses 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, "Yourmoney
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.3You 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

This content downloaded from 138.25.78.25 on Thu, 24 Oct 2013 01:27:38 AM


All use subject to JSTOR Terms and Conditions

36

LimitedGovernment

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 merchants 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.7The 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

This content downloaded from 138.25.78.25 on Thu, 24 Oct 2013 01:27:38 AM


All use subject to JSTOR Terms and Conditions

LimitedGovernment

37

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 governmental 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 transforms physical capability into ethical judgment. It is this
recognition that government makes.
PREVENTING
HARMThe 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 substitute 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 neighbors lose sleep.
* I set up a factory that belches filthy smoke. Some in the surrounding area contract lung cancer.

This content downloaded from 138.25.78.25 on Thu, 24 Oct 2013 01:27:38 AM


All use subject to JSTOR Terms and Conditions

38

LimitedGovernment

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 eighteenth 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 discharge 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
the entire gamut of human behavior. And the
way-essentially
determinations that are made have wealth and preference impacts.
IN My approach dovetails with that of economists such as Ronald
PROPERTY
RIGHTS
LAWAND ECONOMICS
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

This content downloaded from 138.25.78.25 on Thu, 24 Oct 2013 01:27:38 AM


All use subject to JSTOR Terms and Conditions

LimitedGovernment

39

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.

This content downloaded from 138.25.78.25 on Thu, 24 Oct 2013 01:27:38 AM


All use subject to JSTOR Terms and Conditions

40

LimitedGovernment

Moreover, Coase would agree that these determinations by government affect the distribution of wealth. In Coase'sworld 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 pictures 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

This content downloaded from 138.25.78.25 on Thu, 24 Oct 2013 01:27:38 AM


All use subject to JSTOR Terms and Conditions

Limited Government

41

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.
AND There is an irony in all this. Much of the pioneer work regarding the
ETHICS
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 recognize 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-

This content downloaded from 138.25.78.25 on Thu, 24 Oct 2013 01:27:38 AM


All use subject to JSTOR Terms and Conditions

42

LimitedGovernment

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. Operating 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 intensive 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

This content downloaded from 138.25.78.25 on Thu, 24 Oct 2013 01:27:38 AM


All use subject to JSTOR Terms and Conditions

LimitedGovernment

43

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,"ThePublic 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, WhatPrice 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. Foran 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,"
AmericanEconomic Review,57 (May 1967).
10. For the earlier approach, see Pigou, A.C.,TheEconomics of Welfare(New
York:AMSPress, 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 implications for the grounds on which determinations should be made.
11. Coase, Ronald, "The Problem of Social Cost,"Journal of Law and Economics, 3 (October 1960).
12. This argument is based on Kelman, Mark, "Production Theory, Consumption Theory, and Ideology in The Coase Theorem,"Southern California Law Review, 52 (March 1979).

This content downloaded from 138.25.78.25 on Thu, 24 Oct 2013 01:27:38 AM


All use subject to JSTOR Terms and Conditions

44

LimitedGovernment

13. See, for instance, Rowe, Robert, et al., "An Experiment on the Economic
Value of Visibility," Journal of Environmental Economics and Management, 7 (March 1980); see also Thaler, Richard, "Toward a Positive
Theory of Consumer Choice,"Journal ofEconomic Behavior and Organization, 1 (1980).
14. For instance, Demsetz, Harold, "Wealth Distribution and the Ownership of Rights," Journal ofLegal Studies, 1 (1972).
15. See above, p. 1302.
16. Duncan Kennedy makes this point in "Cost-Benefit Analysis of Entitlement 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 normative ethics, see, e.g., the articles in ibid., Smart, J.J.C., and Williams,
Bernard, Utilitarianism: For and Against (Cambridge: Cambridge University Press, 1973); and Brandt, Richard B.,EthicalTheory (Englewood
Cliffs, NJ: Prentice-Hall, 1959), Chaps. 15-17.

This content downloaded from 138.25.78.25 on Thu, 24 Oct 2013 01:27:38 AM


All use subject to JSTOR Terms and Conditions