It’s Not Only about Markets vs. the State

Many of us operate using a false dichotomy: everything that is not a for-profit market process is “the state.” That’s logically wrong, and concedes far too much too the state. It leaves us defending the “perfection” of the market, which is a fool’s errand.

The best argument for markets is not the perfection of the price mechanism; it’s the imperfection of the world. Everything is in the wrong place, and information about how to make things better is dispersed and hard to obtain. Decentralized, voluntary mechanisms for organizing humans socially are the key to solving those problems.

The “state” depends on centralized, coercive means of organizing people socially. That’s almost always a mistake. But it may also be a mistake to insist that market processes, using explicit prices, are the answer. As I argued in my book (with son Kevin) Choosing in Groups, the answer is often found in the suggestions of James Buchanan, one of the founders of Public Choice, who saw politics as a kind of exchange using non-market institutions.


There is a substantial scholarly foundation for this kind of approach. One of the most famous is Alexis de Tocqueville, who wrote in 1831 in Democracy in America that the particular genius of the United States was precisely the ability of Americans to use decentralized voluntary associations that were niether state nor market.

Americans of all ages, all conditions, and all dispositions constantly form associations…religious, moral, serious, futile, general or restricted, enormous or diminutive. The Americans make associations to give entertainments, to found seminaries, to build inns, to construct churches, to diffuse books, to send missionaries to the antipodes; in this manner they found hospitals, prisons, and schools. If it is proposed to inculcate some truth or to foster some feeling by the encouragement of a great example, they form a society. Wherever at the head of some new undertaking you see the government in France, or an aristocrat in England, in the United States you will be sure to find an association.

Tocqueville was worried that state action, and democracy in particular, was displacing voluntary private action in France. He thought that private groups were actually the primary cause of the American capacity for self-governance. Notice the difference: governance, not government. This distinction has recently become important again, in part because of Edward Stringham’s deeply insightful book Private Governance has refocused our attention on the fact that if the government doesn’t interfere citizens can find ways to govern themselves.

Tocqueville claimed that Europeans had lost “the habit of acting in common,” a  marked difference compared to standard “Progressive” dogma, which holds that citizens are only capable of acting in concert through the intercession of the state.  According to Tocqueville:

Amongst democratic nations…all the citizens are independent and feeble; they can do hardly anything by themselves, and none of them can oblige his fellow-men to lend him their assistance. They all, therefore, fall into a state of incapacity, if they do not learn voluntarily to help each other….

[Some claim that] the more enfeebled and incompetent the citizens become, the more able and active the government ought to be rendered, in order that society at large may execute what individuals can no longer accomplish. [But it] is easy to foresee that the time is drawing near when man will be less and less able to produce, of himself alone, the commonest necessaries of life. The task of the governing power will therefore perpetually increase, and its very efforts will extend it every day. The more it stands in the place of associations, the more will individuals, losing the notion of combining together, require its assistance… (Book 2, Section 2, Chapter 5; emphasis added)


This insight was taken up by Richard Cornuelle in his book Reclaiming the American Dream, where he describes “Progressivism” as perceiving “ a mounting agenda of problems so large and complex that only government, the largest single force in sight, seems big enough to handle them.”  (Chapter 4).

The Great Depression and its aftermath made things even worse:

Our habit of sending difficult problems to Washington quickly became almost a reflex. A one-way flow of responsibility to the federal government, begun by Depression remedies, has continued and gained speed. In less than years the government has nearly cornered the market for new public responsibility. (Chapter 4).

Cornuelle’s diagnosis is that, far from mitigating or solving these problems, Progressivism had made them much worse. The voluntary private sector had shriveled, just as Tocqueville had predicted in 1831. But the fault was not just the mistakes of Progressivism, according to Cornuelle. Private market advocates had themselves given away the store by ignoring the importance of what Cornuelle called “the independent sector.” The economist who had led the push for private action had simply failed to recognize the significance of other kinds of voluntary collective action:  

We know that the Progressive movement had two distinct branches—one statist and one voluntarist—of comparable intellectual vigor. We know that before America’s Great Depression, there appears to have been a formidable alternative to government action for almost every aspect of the public business, from disease control to economic stabilization. And we know that by 1958, in The Affluent Society, John K. Galbraith could write about American society as if it had only two sectors—one public, by which he meant governmental, and the other private, by which he meant commercial—and that no one noticed the omission for years.

How could we lose a sector of this size and scope is something of a mystery. Perhaps the decline of this dimension of our pluralism began when Woodrow Wilson set out to use his extraordinary wartime powers to jail all our most gallant, original, and entertaining misfits and rationalize American society. By 1946, the American tradition of independent, nongovernment action on the public business had been buried alive…

Cornuelle called for a recognition of the importance of the independent sector, in effect saying that the motto of anti-statism should be “anything voluntary,” not just “markets are great!”  Voluntary charitable and other private associations seem unimportant to market advocates, but they are a crucial part of a strategy of effective decentralization and liberation. The problem is that, like markets, such institutions have

a natural competitor: government. Both sectors operate in the same industry: public service and welfare. Sometimes, over the years, leaders on each side have sensed their competitive positions and built a fascinating record of both creative competition and deliberate collusion. The quality of life in the U.S. now depends largely on the revival of a lively competition between these two natural contenders for public responsibility. The struggle would enhance the effectiveness of both.

The government doesn’t ignore public opinion because the people who run it are naturally perverse. It isn’t wasteful because it is manned by wasteful people. [The problem is that] without competition, the bureaucracy can’t make government efficient…. Innovation painfully disrupts [bureaucracy’s] way of life. Reform comes only through competitive outsiders who force steady, efficient adjustment to changing situations.

The independent sector will grow strong again when its leaders realize that its unique indispensable natural role in America is to compete with government. It must be as eager as government to take on new public problems. It must be imaginative, vigorous, persistent. Independent groups must line up in Washington, not begging for help but looking for bigger jobs to do.

Tocqueville and Cornuelle should be libertarian heroes. “Voluntary collective action” should be our motto. This obviously includes markets, to be sure. But there is no reason to cede the vitality, attractiveness, and exuberance of the non-profit independent sector to ownership by the state. Voluntary private organizations belong to everyone.

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Michael Munger

Michael Munger is Professor of Economics at Duke University and Senior Fellow of the American Institute for Economic Research. His degrees are from Davidson College, Washingon University in St. Louis, and Washington University.