The Purpose of Government

Recently, I have been reading the magnificent biography of John Maynard Keynes written, in three volumes, by Robert J. A. Skidelsky. In both Volume 1 and Volume 2 of the trilogy, Skidelsky spends some time discussing how Keynes viewed the purpose of government and related his concept back to an essay that Keynes had written on Edmund Burke. This, of course, is very interesting in itself because Keynes is seen as one of the founding fathers of the ‘Liberal’ approach to how government can be used to maneuver the macro-economy and Burke is one of the reigning gods in the ‘Conservative’ pantheon of revelation. What I would like to start off discussing, however, is not the relationship between Keynes and Burke, but the purpose for government that Keynes supports intellectually.

Skidelsky reduces ideas of Keynes to this general statement: “The purpose of government is to secure the contentment of the people as constrained by the principle of equity.” (John Maynard Keynes, Volume 2, The Economist as Savior, 1920-1837 published by Viking Adult in 1994, page 62.) Skidelsky goes on to explain that by ‘contentment’ Keynes meant ‘physical calm’ and ‘material comfort.’ He also defines that ‘equity’ can be defined as “the absence in law or policy of ‘artificial’ discrimination in regards to individuals or to classes.” (page 62)

In other words, the purpose of government is to provide an environment in which individuals can achieve ‘good states of mind’ where one is allowed to achieve whatever ‘good state’ that he or she seeks. This is consistent with the philosophical atmosphere that Keynes was a part of coming from the work of G. E. Moore at Cambridge University (who wrote Principia Ethica (1903; revised edition, Cambridge University Press, 1993) and the Bloomsbury set of intellectuals (Virginia Woolf, Duncan Grant, E. M. Forster, Lytton Strachey and others) located in London. What Keynes was proposing was that everyone should be sufficiently well off and free of economic worries so that they could live the life they wanted, regardless of what others thought of that life.

Keynes, of course, is well known for his efforts to see that societies, especially ones like Great Britain, could attain the ‘physical calm’ and ‘material comfort’ needed for the achievement of such a goal. He was specifically interested in the ‘equity’ issue because his friends in Bloomsbury represented a leading avant garde community that exhibited advanced modern attitudes towards such things as feminism, pacifism, and sexuality. The Bloomsbury group, itself, was relatively well off as far as wealth was concerned and was also assisted over time by the financial support of Keynes; so that the first component of the ‘purpose of government’ was not a concern of theirs. However, Keynes recognized that the condition of ‘material comfort’ and ‘physical calm’ was necessary for the group to pursue its desired lifestyle. Thus, if others were to attain ‘good states of mind’ it was necessary for them to also experience ‘material comfort’ and ‘physical calm’. Hence, government needed to do something to achieve this end.

There was another matter that was important to Keynes in the 1920s and 1930s that fit into his definition of the ‘purpose of government.’ He was very concerned that if many in the country did not experience ‘physical calm’ and ‘material comfort’ they would revolt against the existing democratic governments that supported economic systems that were basically capitalistic in nature. Of course, there was the immediate experience of the Russian Revolution. This worry, however, permeated the Paris Peace talks that followed the Great War and carried over into the 1920s and beyond as real concern was expressed that the ‘masses’ might rise up if they were in a depressed state economically. Thus, a strong, vibrant economy was necessary, it was felt, in order that people could be free to follow the own path to achieving ‘good states of mind.’ The concern here related to the potential breakdown of the capitalistic system.

It is important to address this concept of ‘the purpose of government’ from the Hamiltonian point of view that we have been discussing in previous weeks. One cannot argue from the Hamiltonian standpoint that the goals set out by Keynes are undesirable. We cannot argue that ‘physical calm’ and ‘material comfort’ are good things and are good things for everyone in a society. Also, one cannot argue that there should not be discrimination about the choice of lifestyles, let alone discrimination based on race or any other physical distinction between people.

What one can disagree with this stated purpose from the Hamiltonian point of view is the ability of government to directly achieve specific outcomes. The problem, as I see it, is that this purpose is concerned with outcomes and not processes, a distinction that has been discussed in previous weeks. Outcomes are all fine and good, we argued in the last post, but it is next to impossible for a government to obtain the information necessary to create programs that will achieve the outcomes desired; it is next to impossible to create an incentive system that will accomplish such goal; and it is next to impossible to implement and then execute such programs and policies in a timely manner. In other words, attempting to achieve specific outcomes is a very, very hard thing to do.

It is difficult enough for people to achieve the results that they set out to reach and if they focus only on current specific outcomes they can easily despair. If it is that hard for an individual to achieve what they set out to do, just think how much harder it is for a government to achieve specific outcomes. Furthermore, setting up programs and policies to gain specific ends can become counterproductive in that the programs and policies create other outcomes that are not helpful. And, once programs and policies have been created they are almost never eliminated so that they eventually come to serve other purposes. This is why it is argued that individuals, as well as organizations and governments, should focus on setting up processes that can succeed over time and that provide the tools needed to succeed.

Life is uncertain and an individual or an organization is not going to succeed in every instance. That is why the focus on specific outcomes is not that productive. In baseball, a good hitter will get a hit in 1 out of every 3 times at bat. Or, that batter does not get a hit 2 times out of every three at bats. If we focus on the times the hitter does not get a hit, things look pretty bad. Yet if this person has developed a process, a technique that allows him, on average, to get a hit 1 out of 3 at bats, that person is going to be one of the better hitters in baseball. One is not locked into outcomes when one focuses on processes.

Governmental policies and programs that initiate processes can be leveraged by individuals and organizations to achieve desirable outcomes far beyond the scope and scale of what the government can achieve by itself. In terms of education, the government can support the creation and maintenance of an educational system that results in tremendous positive externalities throughout the society. In this way, the government is helping its citizens attain the tools that are of great benefit to individuals as well as to the society. In terms of capital markets, the government can provide the rules by which capital markets can work and the policing of these markets to oversee ‘fair play’ within the operation of the markets. In terms of a banking system, again the government can provide the rules by which the banking system operates; regulate the system to minimize the amount of abuse taking place; and then support a check clearing system and central banking facilities to support the efficient functioning of the banks.

In all these cases, the government is focusing more on enhancing the infrastructure of the society rather than on achieving specific outcomes. Yes, outcomes are going to vary over time, but even the existing infrastructure should be aimed at smoothing the variation in the outcomes and not offsetting them. Nothing is being said here about the size of government. In a modern, well-functioning capitalistic society, it is my feeling that a fairly sizeable government will be necessary. What is crucial, however, is not the size that the government achieves, but the role the government plays in letting the society determine itself. To me, Keynes was idealistic and not realistic about what a government could do.

Conservative and Liberal...Liberal and Conservative

These words are really meaningless to me except in the sense that they represent the titles that we place on people. We say, “You are a Conservative!” But, what does that mean? I am just labeling someone much as I name something a “Hummer.” “You are a Hummer.” What does that mean? Calling someone a Liberal now means something different than calling someone a Liberal in the 1950s or calling someone a Liberal in the 1910s. And you hear people call themselves “Classical Liberals.” It is a name with varied meanings and when you start modifying the label you know that the title has lost any specific meaning.

A conservative person, to me, is someone that either tends to hold on to what is, or, is someone that doesn’t like to take risks. Conversely, a liberal person is one that is open to many different ideas or is more willing to take risks than is a ‘conservative person’. But, a conservative person or a liberal person is not a platform or a dogma or an ideology. When we move these terms into the realm of titles everything becomes confusing.

I have worked with a lot of people in the world of Information Technology, both in teaching at a major university and in working with young entrepreneurs that are attempting to develop the next “big” thing. In this area, people have gotten away from the terms conservative and liberal and use such terms as adaptive and innovative. These terms possess similar meanings, but get away from some of the baggage of the other terms. A person that is conservative seems to be holding onto the past whereas a person that is adaptive knows that change must take place but wants the change to be slower, moving only when there is real justification for the change. A person that is liberal seems to be open to many different possibilities whereas a person that is innovative is someone that attempts to put a new idea into practice. From this we can see that with this terminology it is easier to discuss a continuum of behavioral tendencies running from adaptive to innovative than to just speak of the two extremes. Thus, it is better to say that individuals are more adaptive than others, or, less innovative. It is not appropriate to say that individuals are either adaptive or they are innovative.

Clayton Christensen, who has written a great deal on technological innovation, has distinguished between innovations that are sustaining and innovations that are disruptive. Here the idea is that all change is innovative in nature. However, a sustaining innovation is one that tends to improve the performance of what exists. It can be ‘discontinuous or radical in nature’ or just ‘incremental’, but, the key factor is that sustaining innovation is change that remains within the existing paradigm. A disruptive innovation, on the other hand, is one that changes how things are done rather than just improves them. A disruptive innovation is a change that introduces a different paradigm. Within this framework it can also be seen that one innovation might be more sustaining than another innovation…or more disruptive. We have once again gotten away from the extremes and have established a continuum.

Why do we need to move away from the liberal/conservative labels? We need to move beyond the liberal/conservative labels because they are very, very misleading. For example, to say that someone is conservative may be something entirely different than to call someone Conservative. And, this is true of the distinction between liberal and Liberal. Why?

For one thing, I don’t believe that most of today’s Conservatives are conservative! In many cases, I find that leading conservatives are more innovative than they are adaptive and that many of the programs that they are presenting or are promoting tend to be more disruptive than they are sustaining. The same thing can be said of Liberals and the programs that they are presenting and promoting.

An example comes to mind. In the early history of the United States, Washington’s first term in office, we see the break occurring between Alexander Hamilton and his supporters and Thomas Jefferson and James Madison and their supporters. The former group was labeled Federalists while the latter group, who later became the Democratic-Republican Party, was originally called the Anti-Federalists. The rivalry between the two parties became rancorous and bitter. The difference was not, in my mind, between conservatives and liberals, but was between different pictures of the world that were more innovative than adaptive and were more disruptive than they were sustaining. This is why the divisions between the two parties were so great.

In the early stages of the battle, Jefferson and Madison attempted to link the Federalists with England and with monarchy. Since the Federalists were attempting to create a stronger central government that overcame the difficulties experienced in the original confederation of states, it seemed a natural defense of the more decentralized confederation to accuse the Federalists of wanting to return to the English model of government and even to create a monarchy. Hence, the Federalists were conservatives as opposed to the more liberal Anti-Federalists. Since a war had recently been fought for independence, these were fighting words…and so the battle was engaged. Emotions ran high.

The Federalists, however, were not conservative…they did not really want to return to the English model. As Benjamin Franklin said, something new had been created. But, there were two visions of what this ‘new’ should be. The Federalists saw a world that included finance and manufacturing and trade (international as well as domestic) and in such a world they believed that there needed to be more power lodged in a centralized, national government because there were just some things that a loose confederation of states could not handle. The Anti-Federalists saw a world of farmers and small businesses that were free and independent of these less civil pursuits. They believed that a more decentralized government would better serve the people. Thus, there was a battle of two world-views.

I believe that the same type of situation exists today. I don’t believe that either the Conservatives or the Liberals want to keep the existing structure. The United States is going through a period of transition and there exists (at least) two world-views as to what the future should look like, and it is not the America now in existence or the America of the past. In this sense, what the Conservatives and the Liberals want, in their own way, is innovative and disruptive in nature. The Conservatives do not want to conserve and the Liberals are not liberal in the sense of being ‘open-minded’ about what should take place. They both have a vision and their visions diverge rather than converge…hence the rancor and bitterness of some of the debate.

Where does this leave us? If we take the earlier experience as a guide we can conclude that this division will not be resolved soon. In my interpretation of past events, the Federalists had an immediate victory and a relatively strong, centralized government was formed, much to the benefit of the United States. However, the Democratic-Republican Party controlled the Presidency and the Congress for a lengthy period of time beginning in 1800 and won many battles in the 19th century. We still, as a nation, from time-to-time, long for the idyllic America, the one composed of small farms and small businesses. The heritage of this past still lingers with us. Yet, one can argue that the United States that evolved is really more ‘Hamiltonian’ (see New York Times columnist David Brooks) than it is anything else.

If this is the case and the conflicting world-views continue to do battle we must adjust our mindsets and perceive the situation as it is and not as a battle to conserve or liberate the country, but as one in which there are (at least) two perceptions of how the government should be structured. I, personally, don’t have any suggestions at the moment as to what these world-views should be called. All I know for sure is that they should not be called Conservative and Liberal.