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Some Fundamentals of the Economic Role of Government

Author(s): Warren J. Samuels

Source: Journal of Economic Issues , Jun., 1989, Vol. 23, No. 2 (Jun., 1989), pp. 427-433

Published by: Taylor & Francis, Ltd.

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J iIJOURNAL OF ECONOMIC ISSUES

Vol. XXIII No. 2 June 1989

Some Fundamentals of the

Economic Role of Government

Warren J. Samuels

The objective of this article is to answer the question, "what are the most fundamental things that can be said about the economic role of government?"' The question should be understood, first, to ask what can be said of government at the truly most fundamental level and, second, to require a positive, nonnormative, answer. The article con- stitutes a precis, as it were, of my answer. The answer is subjective but it is intended to be nonnormative.

The answer I propose has four parts: (1) government is deeply in- volved in the definition and in the creation of the economy; (2) efforts are continually being made to obfuscate the role of government in de- fining and creating the economy so as to selectively channel both the definition and the (re)creation-efforts that are willy nilly a part of the process of definition and (re)creation itself; (3) the proximate critical matter is almost always the legal change of law, that is, the change by law of the interests to which government is to give its support: govern- ment is inexorably involved in the status quo, and the question is the change of the details of that involvement; (4) although the economy and polity are typically comprehended as essentially self-subsistent and independent-albeit interacting-spheres or processes, there is a

The author is Professor of Economics, Michigan State University. This article was pre- sented at the Annual Meeting of the Association for Evolutionary Economics, 27-30 De- cember 1988, Nevu' York. The author is indebted to Steven Medema and Allan Schmidfor comments on an earlier draft.

427

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428 Warren J. Samuels

"legal-economic nexus" in which both originate in an ongoing manner. The economy is an artifact, very much (though not entirely) a prod-

uct of human construction. The most fundamental social process is the definition and creation of socio-economic reality. Two characteristics of this process are selective perception of and a necessity of choice be- tween conflicting interests. Although much of the organization and per- formance of the economy is a matter of the unintended and unforeseen consequences of aggregated individual and subgroup activity, a key fac- tor nonetheless is deliberative government decision-making (choice) and action. Government participates in the organization and control, and therefore the ongoing social construction and reconstruction, of the economy. To the extent that government is such a participant in the social formation of the economy, economic performance is pro tanto a result of government, in any economic system.

People tend to define socioeconomic reality in terms of legal rights. Government selectively protects, as rights, certain interests and not others-and it is rights that form, structure, and operate through the market and the economy in toto. What people define as reality is thereby formed and reformed. In helping to define and create socioeco- nomic reality, law also serves as psychic balm in the face of existential and social ambiguity and uncertainty.

Government is thus an object of control by those who desire to use government to organize or reorganize the economy and redirect eco- nomic performance. This is not a matter of having government inter- vene into a process in which it hitherto had been absent but of

(re)determining the interests to which government will lend its support. Fundamental perennial conflicts exist between different ways of so-

cially constructing and reconstructing the economy, between different interests who could gain from different social constructions of the econ- omy, and between different uses to which government can be put.

Ideologies selectively and necessarily provide premises for the social

(re)construction of reality and rights. Political and economic ideolo- gies constitute belief systems that either develop (often out of wishful thinking, or rationalization, coupled with material interest) and/or are contrived and manipulated to define certain elements of social con-

struction, certain uses of government, or certain interests, as natural and/or legitimate and others as artificial or illegimate. In the context of what generally is called "bounded rationality," and because the so- cioeconomy is not self-defining, ideology selectively defines reality to channel the use of government so as to legitimize and accommodate certain uses of government and to discredit and inhibit other uses, to

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Some Fundamentals of the Economic Role of Government 429

promote continuity of certain uses of government (and/or) change of other uses, (and/or) to channel legal change of law. In part, certain ac- tivities and consequences of government are, through ideology, selec- tively perceived as governmental, whereas others are not. Even ideologies that denigrate government activity comprise agendas for government (some position on continuity versus change of the interests to which government will give its support), not the least when ostensi- bly denying or minimizing government or affirming that government will someday wither away. Belief in limited government has the effect of seeming to limit the power of government, but it can do so only selec- tively, affirming much continuity of legal protection of interests while both affirming and denigrating, selectively, certain changes therein. Government in these matters is part of the myth and symbolic system of society.

Ideology so functions in part by selectively (re)defining reality as cer- tain priviliged rights (interests) that thereby would be given further le- gal protection. Ideology and law render as the natural state of things what is in fact both an artifact and a matter of policy and thus subject to change. One specific way in which this is done is the denigration of government itself. On the one hand, ideology obfuscates the profound uses to which government has been and is put in the status quo, that is, how much the status quo is dependent on the use of government. On the other, it attempts to disengage (engage) or dissuade certain groups from attempting (to attempt) to use government to change law and rights in favor of their interests. This practice both takes advantage of and reinforces the tendency for some people to be law takers (treating law as given (and/or) assuming that they (can/should) have no influence on the law) and for others to be law makers (operating on the assump- tion or realization that law is an instrument that either they or someone else will control and put to use). Ideology thus helps reserve law-making opportunities to those who have, or are induced by ideology to have, a law-making mentality, excluding (or otherwise energizing) those with a law-taking mentality. (It is ideology and the state of law at any given titne that separates law-takers from law-makers. As law changes, ide- ology may transform from a law-taking to a law-making mentality, and vice versa.)

Government is, contrary to ideologies that pretend otherwise, quite fundamental with regard to the nature, structure, operation, and perfor- mance results of the economic system, even in an economic system nominally considered "market." Its involvement in economic matters is complex but no less fundamental for being so.

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430 Warren J. Samuels

One entry point into the complexity is the conventional proposition

that government exists to protect property. The analytical problem

with this view is that government does not protect something as prop- erty because it is property, but property is property because it is pro- tected by government. "Property" is the name given to certain already protected interests. Other protected interests are not given the name

property, although they are functionally equivalent thereto insofar as

they constitute government protection of interests. Designation as property, however, does give certain protected interests a privileged

status insofar as property is distinguished from functional equivalents to property as a basis for further policy. Hierarchically honorific pro- tected interests have tended to be called property, whereas others have

been given less legitimizing names, such as "regulation" or the "welfare state," though these too are essentially means whereby certain interests are given the recognition and protection of government. The critical question always concerns what interests are to be protected by govern- ment, whether designated "property" (or "rights") or otherwise. Histor-

ically, the category of interests protected as property has expanded, as has the range of interests understood to conflict with interests protected

as property. These expansions have involved conflict over the interest protections by which the economy is defined and constructed.

Property rights are to be distinguished, moreover, not only from rights not so designated but from interests sacrificed in favor of those

protected as property rights. Where Alpha and Beta are in the same

field of action and conflict, for government to protect Alpha's interest as property (or as a right per se) is for government to deny protection to Beta's interest and to expose Beta to the consequences of Alpha's having the right. Rights have this dual nature; moreover, externalities

have a related reciprocal character. For every protected interest (right)

there is another in the same field of action that is not protected, but exposed. For every externality there is a reciprocal one that would be

generated by suppression of the former. One function performed by government, in protecting interests and thereby defining legal- economic reality, is the specification of the interests protected as rights and thereby the interests rendered (as nonrights) exposed thereto (the recipients of the realized externality).

Government is an instrument available to whomever is in a position to control it, to put it to use. It also is an arena in which the contest for its control is fought out. The effective protection of interests by gov- ernment often represents a composition of conflicting points of view in what is fundamentally a collective bargaining process, regardless of the

formal structure or ideology of government. (This is not to say that all

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Some Fundamentals of the Economic Role of Government 431

parties are equally, even similarly, situated in the collective bargaining process.) Whatever the metaphor (instrument, arena, collective bar- gaining process), the institutions of government are used to structure economic reality.

Government is, perforce, an object of control in a perpetual contest to have interests protected by government, whether as legal rights, as property or otherwise but especially as property, as immunities from the rights of others, or as beneficiaries of government programs other than rights definition and assignment.

Government as a protector of interests is both a dependent and an independent variable. It is a dependent variable insofar as what gov- ernment does-the interests to which it gives its support-is the result of the interaction of forces acting upon and through it. It is an indepen- dent variable insofar as what government does-the interests to which it gives its support-determines economic structure, operation, and performance. It is true both that the distributions of income and wealth are partly dependent on government and government is partly depen- dent on the distributions of income and wealth. It is also true both that the working rules of law (and morals) govern the distribution and ex- ercise of power and that the distribution and exercise of power govern the development of the working rules of law (and morals). And it is further true both that opportunity sets are partly dependent on legal rights and that legal rights are partly dependent upon opportunity sets, that is, that opportunity sets containing rights to seek or to effectuate change of law can change the identification and assignment (distribu- tion) of legal rights on which opportunity sets rest.

By focusing on either the established or the exposed interest, on the realized or the reciprocal externality, and on the injury consequent to the correction of the realized externality or on the injury consequent to the externality, one exercises selective perception of rights, injuries, costs, and indeed government itself. The distribution of sacrifice is in part the result of government determining which interests will be pro- tected as rights and which will be exposed to the externality-generating actions of others, and thus the distribution of costs (that is, the inci- dence or distribution of social costs as private costs). If Alpha acts so as to injure Beta, government control of Alpha can be understood to constitute either protection of Beta's rights or infringement of Alpha's rights. Ideology is selectively invoked, manipulated and perceived by the respective parties in order to laud or to condemn government, whereas government is willy nilly going to protect one interest or the other.

What is normally considered "intervention" is not the intrusion of

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432 Warren J. Samuels

government in an area in which government hitherto has been absent but the change of the interests to which government gives its support or which government is used to support. The question is not whether there is to be government or no government but which interests gov-

ernment is to support.

Government thus helps, or is used, to structure the status quo, which

defines reality and is used to obfuscate that very fact. Government fa-

cilitated by ideology legitimizes duly constituted autiority and the sta-

tus quo, and renders nugatory the fact of selective use to (re)produce

the status quo. It is also true that governement is both affected by and effects ideology; in part, government may strengthen or engage certain ideologies and restrain and/or inhibit ideologies that otherwise would

be dormant. Among the fundamental things that one can say, then, about govern-

ment in a positive, nonnormative way, are: its involvement in the so- cial (re)definition and (re)construction of reality; its availability for and actual use as an instrument for structuring economic reality; its partici-

pation in the system of contending pretense and obfuscation in which

the status quo, or some alternative set of arrangements, is-however selectively-given an independent, preeminent or otherwise privileged status; its active, if subtle, involvement in producing economic perfor- mance; its operation as a decision-making process that both affects and is affected by the structure of nominally private power; and its inexor-

able involvement as a mode of change-the legal change of legal protec-

tion given to interests-at the margin of socioeconomic evolution. This being the case, the conventional distinction between government and economy, and between private and public, seems both analytically false and normatively misleading and subject to selective perception and pu- tative abuse. For law-government is not exogenous to the economic system and the economic system cannot exist independent of law and

government. There is a legal-economic nexus in which it may appear that government and economy interact as separate social processes but in which each is actually fundamentally involved in the (re)determi- nation of the other and thereby of social reality. This happens at the margin of social evolution, and it is to the (re)definition and (re)con- struction of this margin through legal change that selective perception operates and competing ideologies are brought to bear. At that margin, the economy is an object of legal control-change in the service of eco- nomic actors, and the law is an instrument of economic advantage, but through selective perception, this is either passively or actively ob- scured.

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Some Fundamentals of the Economic Role of Government 433

Notes

1. The present essay represents a partial recapitulation and extension of ideas presented most recently in Samuels [1988, 1987] and Samuels and Mercuro [1979]. The orientation of Vilfredo Pareto is also relevant (see Samuels [1974]).

References

Samuels, Warren J. 1988. "An Essay on the Nature and Significance of the Nor- mative Nature of Economics." Journal of Post Keynesian Economics 10 (Spring): 347-54.

_ 1987. "The Idea of the Corporation as a Person: On the Normative Significance of Judicial Language." In Corporations and Society: Power and Responsibility, ed. Warren J. Samuels and Arthur S. Miller, pp. 113-29. Westport: Greenwood Press.

. 1974. Pareto on Policy. New York: Elsevier. ,and Nicholas Mercuro. 1979. "The Role and Resolution of the Com-

pensation Principle in Society: Part One-The Role. "In Research in Law and Economics, Vol. 1, pp. 157-94.

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