The Transaction Cost Theory of Government

(second draft) (closer)

[H]istory says only that the development of a state – a monopoly bureaucracy – transfers high local transaction costs without central rents, to state rents and low transaction cost. Libertarians nearly universally ignore the evidence of universal transaction costs and free riding at the local level.

And they further ignore the demonstrated necessity using organized violence by a monopoly organization to suppress those transaction costs and free ridings (“local rents”), and to convert them into central rents in order to pay for such suppression.

The counter-argument is that states are in fact a neutral cost, and that we don’t spend enough on them in the suppression of transaction costs, because states provide multiples of return on that suppression. This is also demonstrable.

The question isn’t how we can do without the state (a corporation articulated as a monopoly definition of property rights ), but now that we have suppressed local transaction costs, and replaced them with centralized rents in order to produce the commons we call property rights – how do we suppress centralized rents while maintaining the suppression of transaction costs, and the ability to construct commons that such suppression of transaction costs and rents allows us to construct?

To argue that a monopoly definition of property rights is somehow “bad”, is irrational since property, obtained by homesteading and by voluntarily exchange, under the requirements for productivity, warranty and symmetry, is as far as I know, as logically consistent and exception-less as are mathematical operations on natural numbers. So the imposition of property rights cannot be illogical, immoral, unethical no matter how they are imposed since they define that which is logical, ethical and moral.

There is nothing wrong whatsoever with violence – in fact, it is violence with which we pay for property rights and liberty – it is our first, most important resource in the construction of liberty. Instead, the question is purely institutional: having used violence to centralize transaction costs into rents, how do we now use violence to eliminate rents from the central organization?

This is pretty easy: Universal standing, Universal Property rights, and Organically constructed, Common Law, predicated upon the one law of property rights as positive articulation of the prohibition on and the suppression of involuntary transfers: the demand for fully informed, productive, warrantied, voluntary exchanges free of externality. Because it is only under fully informed, productive, voluntary transfer, warrantied and free of externality that cooperation is rational, rather than parasitic. And only under rational cooperation is forgoing one’s opportunity to use violence equally rational.

The question becomes then, who prohibits the formation of authority and this falls to the citizenry: the militia – those who possess violence.

As far as I know this is the correct analysis of political evolution, and the correct theory for future political action.

Curt Doolittle 
The Propertarian Institute 
Kiev, Ukraine.

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