The following long-form piece was an essay submitted in May 2022 to the Mont Pelerin Society for the Hayek Essay Contest on the topic of international order. Although rejected, the subject is important and of interest for our readers.
What is the appropriate role of government? That is probably one of the most important questions we have to ask ourselves after what we have seen in the pandemic – and arguably, after what had already happened (long) before the pandemic. Unfortunately, there is no easy answer to that question.
In the classical liberal tradition, the role of government is relatively minimal. Government is concerned only with protecting the citizens from internal and external threats. For example, Mises  states that “government ought to protect the individuals within the country against the violent and fraudulent attacks of gangsters, and it should defend the country against foreign enemies.” Some thinkers in the classical liberal tradition go beyond this minimal role. Hayek  writes that “there can be no doubt that some minimum of food, shelter, and clothing, sufficient to preserve health and the capacity to work, can be assured to everybody.” He adds that he sees no reason “why the state should not assist the individuals in providing for those common hazards of life against which, because of their uncertainty, few individuals can make adequate provision.”
Other ideological traditions often argue that the role of government ought to be much broader than that. Haidt  has convincingly argued that the preferred role of government derives from an individual’s most important values. Socialists tend to care for the victims of oppression as their most important value and therefore try to use government to better the situation of whomever they see as victims of oppression. Conservatives tend to value the preservation of traditions and institutions that sustain a moral community, and that is where they will see the primary role of government. In contrast, libertarians (or classical liberals) see individual liberty as the most important value. Therefore, they prefer the government to be as minimal as possible (Nozick 1974) – or no government at all.
It is already apparent that it is not an easy task to find a government role that every individual agrees with. That might be easier if the group of people is small in number and ideologically homogenous. However, as an example, even in groups where all individuals are socialists, it is unlikely that they all agree on who the oppressed people are. In the unlikely case that they can agree on that, it is even more unlikely that they agree on what exactly is to be done to best help those oppressed people. In other words: People who are ideologically close to each other often agree on an abstract level, but that agreement usually breaks down on the level of action. As all action, also “government action,” takes place on this level, and it is the action that impacts people’s lives, it is evident that an agreement on the most abstract level does not imply (continued) agreement on the level of a specific role of government.
On top of that, societal agreement over the role of government does not imply societal adequacy of a specific role . Of course, there are other issues with finding the appropriate role of government, and this essay will deal with some of them. However, the problem stated above is substantial and gets more significant the more numerous and less homogenous the group is.
From an economic perspective, it is essential to take each personal preference into account as much as possible, as this preference may be based on important knowledge nobody else has. Discussing the appropriate role of government from the perspective of rights or morality might help to improve knowledge. However, when discussing the role of government from this perspective, the focus often is too much on finding the right answers and not enough on finding out what works – in other words: what is useful. But what does it matter for an ideology to have the right answers when it becomes less and less relevant in the discussions on defining the appropriate role of government? In some sense, the answers that focus on usefulness are the right ones. That is why the focus in discussing the role of government should be on how to find out what works, not what is right. And suddenly, just because of this slight change in perspective, the question we started with becomes a new one – and in my opinion, a much more interesting one: What is the most useful framework for finding the appropriate role of government? The answer to this question will – as will be shown – also answer the question this essay is concerned with: What is the appropriate role for secession?
A useful framework
For the purpose of further analysis, governments can be viewed as providers of a bundle of goods and services. Another way to look at government is to simply view it as the entity that creates the frame in which human interaction within a specific society occurs – in other words: government creates an order. Government, therefore, does not necessarily mean the government of a country but can refer to any entity governing a group, thereby providing at least one service (governance) to this group. In this essay, however, by government, I mean the government of some country if not mentioned otherwise.
When searching for a useful framework for finding the appropriate role of government, one question invariably comes up. It is the question of whether such a framework must be consciously designed to lead to the best results possible. My claim – to be explored in more depth later – is that such a design is (1) impossible and (2) unnecessary. As Menger  argued, “law, language, the state, money, markets, all these social structures in their various empirical forms and in their constant change are to no small extent the unintended result of social development.” Hayek made a similar argument, adding  that “such an order, although far from perfect and often inefficient, can extend farther than any order men could create by deliberately putting countless elements into selected ‘appropriate’ places. Most defects and inefficiencies of such spontaneous orders result from attempting to interfere with or to prevent their mechanisms from operating, or to improve the details of their results.” If that is true, the most useful framework to find the appropriate role of government would be not to hinder the emergence of spontaneous order.
The essay will proceed as follows. First, I show how the problem of finding the appropriate role of government is currently tackled. I also discuss some of the issues with that approach. Second, I argue why these problems are different instances of Kirzner’s basic knowledge problem. The relevancy of the knowledge problem for finding the appropriate role of government is presented. Third, I discuss an alternative approach based on the Hayekian model of competition as a discovery process. That includes reasons why such a framework likely leads to a spontaneous order yielding much better results than alternatives. Fourth, I show how secession relates to spontaneous order and why it is impossible to find the appropriate role of government without allowing for (mostly) unrestricted secession.
Governments’ role defined and implemented by the government?
The task of discovering and defining the appropriate role of government is today done mainly by people working in government – sometimes with the help of elections, referenda, or similar tools. Under the assumption that people in government are trying to best improve the situation of the people within their governmental sphere, they will try to rationally construct the government role that is most conducive to doing that.
Even though that approach is understandable and looks good on the surface, it leads to many issues. I already mentioned one of the issues: ideological and individual diversity leads to a very low probability of agreement on the specific role of government. Viewed economically, that leads to high opportunity costs on the level of many individuals. The opportunity costs tend to rise with the number of individuals within the group. Also, the less ideologically homogeneous the group is, the higher the opportunity costs tend to be because the required trade-offs of the individuals are more significant.
That, however, is not the most significant issue the government is confronted with. By implementing a role of government, governments necessarily interfere with the existing order of society. Governments often ignore that pre-existing order because no institution or individual consciously planned and later implemented that order. However, there can be no doubt that some kind of order – we might call it a spontaneous order  – existed even before governments defined their role and interfered with that order. The way it came into being is by the actions and interactions of individuals that did not aim to create an order – order was an unintended consequence of their actions. The order did not emerge all at once but in many small steps, evolutionarily. It was the result of many improvements made over time. Hence, we might ask: What requirements allow the government to improve on such an order?
First, the existing order needs not be perfect. That is obvious, as it is impossible to improve on a perfect order. It is also very likely that the pre-existing order is not perfect, even though it is not an easy task to judge perfection – especially when it comes to highly complex topics like the order of society. For the purpose of further analysis, we will assume that governments can theoretically improve upon the pre-existing order. Second, the government needs to know what improvement looks like for the order of society. Third, it needs to know how exactly to improve this order, i.e., it needs to know what the specifics of the role must be to improve the order. Fourth, as societies don’t stay stagnant, governments need some mechanism to deal with that change in society, and that provides some information on how the role of government needs to change so the order does not break down. Fifth, the government needs some mechanism to determine whether a change in its role improved or worsened the societal order.
Unfortunately, governments know neither what improvement looks like nor how to improve the order. That should not come as a surprise because this knowledge is something that nobody has – it is what Hayek calls “dispersed knowledge” . On top of that, governments have – in the best case – inadequate mechanisms to get information on change and the consequences of a role change. These mechanisms are limited to getting feedback from some members of the public or statistical data on approval, mainly on an abstract level – for example, by elections. We will look into these issues in more detail in the following two chapters.
The knowledge problem
The main issue we are dealing with is ultimately a knowledge problem – governments do not have the necessary knowledge to make sure the changes they make in an evolved order by interfering with this order lead to an improvement of the pre-existing order. That is true regardless of the specific role of government.
The knowledge problem has many facets, all of which are special cases of what Kirzner  called the basic knowledge problem: “Because of inadequacies in the planner’s knowledge of his true circumstances, his plan may fall to yield an attainable optimum.” As Kirzner shows, the Hayekian knowledge problem is a special case of that basic knowledge problem. Hayek  argues that “the knowledge of the circumstances of which we must make use never exists in concentrated or integrated form but solely as the dispersed bits of incomplete and frequently contradictory knowledge which all the separate individuals possess. […] It is rather a problem of securing the best use of resources known to any of the members of society, for ends whose relative importance only these individuals know.”
This problem is challenging, especially for governments. For example, Menger told Crown Prince Rudolph when he was his tutor : “Government cannot possibly know the interests of all citizens, and to help them it would have to take account of each of the diverse activities of everybody. For any sort of blueprint that hampers individuality and its free development, no matter where it is applied, would be quite unsuitable.” Also, de Soto argues  that “it is impossible for the agency to constantly assimilate the enormous volume of practical information stored in the minds of different human beings,” and “the subjective, practical, tacit, and nonverbal nature of most of the necessary information precludes its transmission to the central organ.” Governments cannot solve the knowledge problem by accumulating more information – Kirzner also showed this .
The heart of the knowledge problem, according to Kirzner, is “unknown ignorance” by the central planner – which in the case we are discussing, is a government wanting to interfere with the pre-existing order. He argues  that “what the central planner thinks he knows about the relevant circumstances must necessarily take the form of what he thinks he knows about the availability of dispersed bits of knowledge that can somehow, at some cost, be mobilized In formulating and implementing the social plan. There is little chance that the central planner can ever know where to find, or how to search for, all the items of dispersed Information known somewhere in the economic system. Moreover there seems little chance that the central planner can ever be fully aware of the nature of extent of the specific gaps in his own knowledge in this regard. He may realize, in a general way, that there is information the location of which he is ignorant, but this gives him no clue on where to look. The end result is that the planner is unlikely to be able to exploit all the information that is within his command.”
We can see that the knowledge problem is not just about acquiring knowledge but also about being aware of knowledge gaps. That raises an important question: How can both the knowledge gaps and the missing knowledge be discovered? In Kirzner’s ]16] words, the answer lies in the “ability of disequilibrium prices to offer pure profit opportunities that can attract the notice of alert, profit-seeking entrepreneurs. Where market participants have failed to coordinate their activities because of dispersed knowledge, this expresses itself in an array of prices that suggests to alert entrepreneurs where they may win pure profits.”
Competition leads to discovery
The competitive process of the market leads to the discovery of knowledge by all market participants. Hayek  called competition “a procedure for the discovery of such facts as, without resort to it, would not be known to anyone, or at least not be used.” The discovery of knowledge is a consequence of people responding to the price structure, with each individual acting in a way that is personally considered best from the standpoint of (perceived) skills and knowledge. Each individual has the opportunity to act as an entrepreneur, trying to utilize profit opportunities.
The most important questions that competition provides information on are the following:
Is the plan I am following the best plan of the options I perceive?
Are there issues with the order?
How can the existing order be improved?
The first question is answered by a profit-/loss-comparison of different plans. If other plans have a higher expected profit, it would be better to switch to the plan that promises the highest profit – this is the way to minimize opportunity cost. The second and third questions are all about knowledge on improving the existing order. This knowledge is revealed by profit opportunities. If there are profit opportunities, there are issues with the order. What exactly the profit opportunities are provides knowledge on how to improve the existing order. This knowledge, of course, is not just necessary because society changes all the time, and these changes often require adaptations in the existing order. It is also essential to make sure that weaknesses in the order are discovered and corrected. As we can see, competition makes sure that the self-interest of individuals leads to the emergence of a highly complex order that is the unintended byproduct of the actions of individuals.
Note that the government does not have these discovery mechanisms when deciding on or changing the role of government if it does not allow for competition in the provision of governmental services. It is true that democratic referenda provide at least some feedback. However, when the knowledge cannot be discovered because there is no competition, individuals cannot give the knowledge to governments with votes or other mechanisms. That is why de Soto  calls institutional coercion (substituting governmental command for the market process) an intellectual error. He calls it “theoretically impossible for an agency […] to obtain the information it would need to establish social coordination with its decrees.” He adds that “information which actors have not yet discovered or created and which simply arises from the free market process […] cannot be transmitted” and that “coercion keeps entrepreneurs from discovering or creating the information necessary to coordinate society.”
The fundamental difference between an order based on command and an order based on competition is that in the case of competition, society can use the knowledge of all participants, and the diverse aims of all participants are served .
It is also worth noting that competition is essential regardless of the fundamental morals one has, as the discovery of knowledge is a requirement to be effective. If – for example – one wants to help the oppressed, discovering how to best do that with competition is essential for solving that task.
Therefore, the most useful framework for finding the appropriate role of government is a framework of competition. It allows the government to discover the needed knowledge to determine its role.
The appropriate role of secession
Having established the importance of competition and entrepreneurship for the discovery of knowledge and the emergence of spontaneous order, we are now able to establish the appropriate role of secession. The kind of secession meant here is secession on an individual level. The benefits of secession are also valid for group secession, albeit sometimes to a lesser degree. Secession is, in essence, the most extensive refusal of the services of one specific provider of governmental services. As the opportunity to refuse services is one precondition for competition to occur, we can say that: The appropriate role of secession is to facilitate meaningful competition in providing governmental services.
What is meant by meaningful is that nowadays, there is already some degree of competition in governmental services taking place. However, this competition is severely limited. First, it takes place among a predetermined number of governments, most of which are cartelized in many essential ways (this is, for example, true for the governments in the EU). Second, there is a territorial monopoly of government services in a particular area. This kind of competition can at best be called “controlled competition” and it hinders the evolutionary improvement of the existing order. It leads to very high costs of changing the government provider while at the same time strongly limiting the potential benefits of competition in government services. What is needed to improve the social order evolutionarily is the opportunity for every individual to provide and choose alternative government services.
Hayek, as argued by Schwartzstein , “presents an evolutionary theory of social institutions. Those social institutions that function well survive, while those that are less successful are abandoned. […] Markets, laws, and other institutions that develop through evolution, not as a result of human design, can allow society to prosper and to exploit the dispersed knowledge and creativity that no one person or group of persons can possess.” To think that these social institutions can be consciously designed is what Hayek calls a “fatal conceit”, for reasons some of which were presented in this essay.
There is no reason to exempt governments from the very process that improves all other social institutions. On the contrary, exempting governments from this process might be the most dangerous and impactful mistake a society can make, as governments tend to interfere extensively with social order. Wrong governmental decisions can therefore lead to evolutionary regression, endangering the society and all individuals that are members of the society. As was already shown: Wrong governmental decisions are highly likely in an environment where essential knowledge cannot be discovered.
Individual secession, of course, raises one important issue: The issue of non-territorial governments. Essentially, this means that there can be any number of different governments in an area. That, some argue, leads to complete chaos and is making it impossible to interact with strangers. Hayek, for example, said in an interview in 1978 that “the conception of some of our modern anarchists that you could have one club which agrees on one law, another club [agrees on another law], would make it just impossible to deal with any stranger.” Stringham and Zywicki  argue that Hayek is mistaken here because this is already happening nowadays, without it being much of an issue. Also, technological advances can provide solutions to non-territorial governance, as Cowen shows with the example of blockchain technology in his 2018 MPS essay. However, what has to be said is that this kind of non-territorial governmental system could make interaction with each other more complex because people cannot just assume that all the people they know follow precisely the same rules as them. That could, however, have positive societal effects, as it would mean that individuals have to be more attentive and considerate when interacting with other individuals. Also, it should be evident that the discovery process does not come for free. As Hayek admits, “the cost of the discovery procedure that we use is considerable.” However, a society that does not discover the necessary knowledge for evolutionary progress risks evolutionary regression.
In closing, I am reminded of something that Hayek said in a lecture in 1977. He made a very interesting argument – related to money – that shines a light on an often ignored downside of government monopolies. He said:
“The interesting fact is that what I have called the monopoly of government of issuing money has not only deprived us of good money but has also deprived us of the only process by which we can find out what would be good money. We do not even quite know what exact qualities we want because in the two thousand years in which we have used coins and other money, we have never been allowed to experiment with it, we have never been given a chance to find out what the best kind of money would be.”
Could not a similar argument be made for monopolistic governments? Have we “forgotten” about what good governments look like? I certainly think so. And I think it is high time to restart that framework that allows us to find out what good governments look like – by letting people secede if they wish to provide governmental services themselves or want to join another provider.
The discussion on societal order should not be over what the role of government ought to be, but instead in which framework the role of government is decided on. My claim is that the only framework that can lead to an improved order of society is one of competition, as other frameworks lack the necessary knowledge discovery mechanism to improve on an existing societal order.
Consciously planning and implementing an advantageous and functioning order for libertarian societies is as impossible as it is for their socialist and conservative counterparts. Therefore, even a societal order that we all agree is a good one should – at least – be open to experiments with alternative societal orders by alternative providers of governmental services. Every societal order needs competition to discover knowledge on how to improve. Secession is a mechanism to facilitate such competition.
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