Anti-Federalist #3

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I would like to see the American system of government peacefully evolve toward market anarchism. This will probably happen when 10—20 percent of Americans fully understand that this is the right direction to go in. An educational effort along these lines looks to benefit from a twofold emphasis: why the ideas of market anarchism are correct and why the ideas motivating our current directions are incorrect.

At the heart of our system lie the supporting ideas and beliefs that were born hundreds of years ago and have been inculcated ever since. If we are headed in wrong directions, then some of these ideas must be faulty. The Federalist Papers are a useful source of such ideas. This article, like my earlier article, Anti-Federalist #2, evaluates arguments of the Founding Fathers.

The arguments that John Jay made in Federalist #3 focus on the notion that union of the states is a means to reduce warfare. If a union of states is weak, then clearly union cannot and does not reduce warfare. If the union is moderately strong, then the incentive of the federal state is to combine several stronger states and suppress the weaker states so as to create a strong union, that is, a stronger federal state. This suppression may or may not involve traditional warfare, but it will involve aggression and levering the power of the state to gain more power. The War Between the States can be interpreted as such a situation in which outright war occurred, and the federal government gained power. Once a union of states is strong, meaning the resulting federal state is strong, then it has incentives to suppress all the individual states and other centers of power in the society. It also has incentives to look outside its borders in order to expand further. The state may move in these directions because of or hand-in-hand with business and financial interests and/or there may be intellectual and bureaucratic interests associated with the state’s rise. These are other parts of the overall picture. No matter how these fit in, the fact is that once a state exists, it has the incentive to gain power, internally and externally. This implies that a union of states into a stronger state will not reduce warfare, as Jay supposed. It encourages aggression of the stronger state. Even if there are limitations on the central state’s powers, the incentives exist to break down those limitations.

The best of all worlds

I have heard it strongly argued by Chicago-school economists that the state is an optimal institution because it is the situation or equilibrium that we and other societies have arrived at. These economists come to this view by generalizing from free market behavior. For example, suppose that in a free market we observe automobiles with tail fins being made and sold. A critic like John Kenneth Galbraith will incorrectly attribute this to the oligopoly position of the auto manufacturers or to their concerted advertising. The suppliers or producers, in his view, tell the consumers what they shall buy. An economist like Ludwig von Mises as well as Chicago school economists have in common that they correctly attribute product attributes to the tastes of the consumers making themselves felt. Consumer demand is essential to observing products being produced with particular characteristics. Consumers demand tail fins or Chinese restaurants in every third mall. The Chicagoans then ask: Don’t voters then also demand the state? Don’t they shape the state to their liking? And isn’t the state then an optimal institution for the consumers (or voters)? Don’t we have a state because we want a state?

John Jay begins Federalist #3 with the same argument, namely, "that the people of any country (if, like the Americans, intelligent and well informed) seldom adopt and steadily persevere for many years in an erroneous opinion respecting their interests." And since the American people (pre-adoption of the Constitution) have in the past been "firmly united under one federal government," they have already shown what they want. They want union and a central government "vested with sufficient powers for all general and national purposes."

In a way, the argument in short says "What is, is what is best or what people want." This is Dr. Pangloss in Voltaire’s Candide telling us that "This is the best of all possible worlds."

Political systems are not free markets

There are good reasons, however, to think that the state is not what we want. First of all, we do not influence the existence of the state in the same way we influence the existence of a car manufacturer. Every time a consumer decides whether or not to buy a car, he votes on the existence of car manufacturers. It is true that his influence is small, but it is continual and direct. Collectively, all consumers quickly target their preferences right at the auto producer. If the consumer doesn’t want a Lexus, he can buy a Mercedes-Benz. But if a voter doesn’t want the union, what does he do? Never since the Constitution came into force has the U.S. had an up or down vote on the federal union itself.

Second, if we try to walk away from the state (while remaining where we are territorially), we can’t. If we have a state, it is not simply or solely because we want one, it is surely also the case that the state forces itself on us and we can’t get out of it. When we observe the high frequency of rebellions, revolutions, civil wars, secessionist, and separatist movements against states, is this not the clearest possible evidence that many people in many places and times do not accept a state’s existence or at least the form of a state? They apparently are not getting the state they want. And if the state wins some of these battles, it does not mean that the losers either want the state or deserve it. It means they are under compulsion to accept it. Conversely, when states violently or through various wiles conquer and incorporate territories, are we to believe it is because the conquered citizens want that outcome? By contrast, apart perhaps from some violent environmentalists, one rarely hears of mass movements to overturn auto companies or other enterprises. A consumer peacefully secedes by not buying the product. A boycott will do the job even more strongly.

Even if we have a state that many if not most people want, this still does not mean that the resulting equilibrium is optimal. It may be profitable to change to a new situation. Because there is human ignorance that can be overcome, we may discover a better political arrangement. The wheel may have been invented around 8,000 B.C. For a million years before then, there may not have been such a thing. The germ theory of disease developed only in the last few hundred years. Similarly, the state as we know it has only been around for a few hundred years, and the welfare and warfare state an even shorter length of time. Looked at this way, the probability is near 1, that is, it is a virtual certainty that the modern state is not optimal and that it will be replaced by new political forms. And a scholar like Martin van Creveld argues that the state is already passing from the world scene as the predominant political form.

Even without ignorance and discovery, there is re-discovery. People may decide that the state is an error and they may go back to some variant of earlier forms. Jay specifically argues that errors do not persevere for "many years," but they can. Voltaire made sure to point out the many persistent manmade evils of this world such as war. Will Jay (if he could) and the Chicagoans argue that since everyone is acting in his or her best interests, then World War I must have been an optimal affair with millions of men killing and maiming each other across a static battle front for years on end? Some may so argue, but most will not because such an assertion is so implausible. Instead, they will argue that the war or its continuation involved errors of anticipation or miscalculations. This is a legitimate idea. We all agree that human action anticipates an improvement in utility, but we do not always get it.

But if World War I involved errors, can’t acceptance of the state itself also involve error? In theory, the answer has to be "Yes." Jay’s answer, also that of the Chicagoans, is that so much time has elapsed and so much knowledge has accumulated that voters would have been able to correct such a basic error. If Americans accept their state after 220 years, they can’t be mistaken in their choice or they would have found this out (ignoring the fact that Americans fought a war over the very issue of acceptance in 1861-1865.) This is an empirical answer, not a theoretical one. Yet the fact is that errors can persist. People can believe for hundreds of years that witches cause disease, or that states foster prosperity when they do not. Why? The errors committed by political institutions cannot be discovered as quickly as errors made in buying a product from a manufacturer. There are too many confounding variables that operate simultaneously; and the costs of political errors are sometimes not realized until many years after the original sins. The causes of Pearl Harbor and 9/11 reach back many years, perhaps 40 years in each case. By the time these tragedies occur, the average person cannot remember earlier causes or causes before his or her birth. They are unable to decipher why the bad event is happening. Nor does it pay them (a) to understand the causes, since they can’t change the state anyway, or (b) to go out of their way to communicate the problems to others who may have little or no interest in changing the situation. Beside these factors, the state is constantly engaged in teaching Americans that it makes no errors, that all bad events are caused by others, and that it (the state) is, in any event, indispensable.

For these reasons, errors in selecting a political framework persist for a much longer time than errors in choosing a Ford with a transmission problem. The Chicago-style view that errors can’t persist is not persuasive.

I have spent a good deal more space on this argument than Jay gave to it for the reason that many people argue it today in the Chicago optimality form. The basic rebuttals arise from the fact that political systems are not equivalent to free markets.

More states, more wars?

Jay argues that the security against hostile foreign powers is best assured by "an efficient national government." Looking backwards at the twentieth century and its wars, the gross facts do not bear out this contention either here in the U.S. or in many other countries. National governments have been efficient at bringing grief. Since historical interpretations are always disputable, we turn to Jay’s reasoning.

Wars, he points out first, arise from broken treaties and from invasions. With more states making more treaties, the argument goes, the odds of wars rise. Therefore, it’s better to have a single state making treaties. Jay is correct that more treaties raise the chances of wars, ceteris paribus. However, not all other things are held equal. (A) An individual state, being smaller and knowing its interests better than a central state, has more incentive to make a treaty on terms that will not lead to conflict. This is because it will bear the full costs of a war should the treaty break down. It won’t shift some costs to other states via a union. (B) Within a union, a state has more incentive not to live up to a treaty’s terms and drag the union into war because the state does not bear the full costs of the war. (C) Treaties often end wars or contentious negotiations. That is, they come about because there are disagreements in the first place. If the disagreements are already present, then having more or fewer states does not necessarily alter the potential sources of friction with hostile powers. (D) The central state will be pressured by regional and other interests, including pro-war interests. These pressures can lead to just as many wars as individual states might instigate, and they are likely to be larger wars because they will involve all the states in the union.

Jay then argues that a single union is less likely to break the "law of nations" than several states. One reason is that wiser, more experienced, and more judicious men will serve a national government than state governments. This, by the way, is an argument for world government. It is true that one might choose 100 men with a particular characteristic from a pool of 1,000,000 and achieve more success than choosing 100 men from a pool of 100,000. But we now know from statistical sampling theory that the difference in the average will be trivial and the dispersion in the characteristic will be a second order effect. National leaders will not be significantly different from the leaders of individual states. In addition, enormous noise is introduced into the selection process by all the procedures of candidate selection, ballot access, campaigning, and voting, making it a tenuous proposition that federal officials will be wiser than state officials. And if they are more experienced, what are they experienced at? They know better how to gain power. This is not necessarily a good thing.

Another supposed reason for federal superiority is that the federal government will have a more uniform interpretation and execution of the law of nations than will several states. It is almost true by definition that a single government will be more uniform than several inasmuch as it has one law code. But that single code might be a patchwork, taking bits and pieces from many states. This does not necessarily enhance the welfare of the citizens of the several states. A single government will reach compromises. It will have to ignore the specific interests of some areas. It may be heavily influenced by some interests to the exclusion of others. When it comes to interacting with other states via the law of nations, it might act just as arbitrarily as any other state government simply because it is a government of men like any other government.

Jay argues that the more states there are, the greater the chance that some will find it advantageous to make war. Union, he says, is better because a given state will have less influence within a union in getting the federal government to go to war. This argument can be restated as follows. Suppose each ruffian in a city can individually start a fight with others. There may be quite a few fistfights. Now suppose they all are in a club, and no one can fight without the permission of the rest. There will be fewer fights. This argument makes sense as far as it goes, but it does not go far enough. With side payments and logrolling or with each member coming to share the grievances of the other members, there may be almost as many fights by the club as by individuals. If the combined power of all the ruffians joined together encourages them, they may even engage in more fights. They may go out and bully individuals. No matter how many fights there are, they may be more serious in a club than if the individuals fought single bouts. These possibilities exist for states joined into a union too.

If a war does begin, it may be more devastating if a single union prosecutes it, since many states will be dragged into a conflict that may be regional in nature. A more powerful union may be inclined to take more chances or use its power more than would a single state. It may represent more of a threat to other nations and elicit hostility from them. At the same time, fear of a larger power may cause more deference to it.

The feds are more objective

Jay argues that individual states are more subject to passions, to an inability to control the passions and interests of groups within the states, and to bias in favor of their own causes. These all lend themselves to more squabbles and wars, as with Indians. He pictures the federal government, removed from these passions, stronger, and unbiased, as better able to smooth over conflicts and end difficulties. The particular parties he had in mind were those of the Indians, the Spanish, and the British, and sometimes these were all linked together. The problem with this argument is that if the federal government were too weak to stop the infringements of settlers upon Indian-occupied lands, then union would not stop the low and medium-intensity warfare at the borders. And if the union became strong enough to control the states, then the danger became that it would not be unbiased but would tyrannize the states and the Indians for its own ends. In view of human nature and self-interest, one cannot have a federal government that is both strong and unbiased.

In fact, the union did not and could not remove the root cause of the conflicts between the settlers and the Indians. The Indians were continually pushed back. In the case of the Cherokee Nation, apart from the powerless Supreme Court, the federal government sided with Georgia. As early as 1802, Congress promised Cherokee land to Georgia. Presidents Jefferson and Monroe favored Indian removal (ethnic cleansing.) President Jackson did not enforce treaties with the Cherokee, allowing Georgia to seize Cherokee land and run rampant. After the Cherokee won several Supreme Court cases, Jackson replied: "Justice Marshall has made his decision. Let him enforce it." The end result was that federal troops in 1838 forcibly evacuated the Cherokee, a despicable example of ethnic cleansing.

With the benefit of hindsight, it is easy to see that Jay’s argument about federal "moderation," about its being more "temperate and cool," and about acting with more "wisdom and prudence" than the states was off the mark. The reasons were simple. The federal government was still a government, a means of power wielded by men with their own interests and passions. It was still a political institution subject to the complex influences of the states and internal alliances. It shared the expansionist objectives of the states. The federal government turned out to be as subjective as any other government; its officials had their own prejudices, fixed ideas, and biases. What was worse, they learned how to accumulate and wield more power than any individual state had.


John Jay paints a picture that persists to this day, of a federal government peopled by public-minded servants who are the cream of the crop and who place the national interest above tawdry sectional rivalries. They keep the narrow-minded and hot-headed states in line and prevent what would otherwise be continual warfare brought on by states out of control. Logic suggests a far different picture. The federal government is peopled by rulers whose passions, interests, and prejudices are every bit as strong as people in the states. Federal officials are pressured by regional and other interests who might wish to promote wars because the costs will partially be borne by other states. There is no guarantee that wars will be fewer with a central state than without. Moreover, since the central state has greater power than the individual states, wars may become larger. Once the central state reaches the point where it can command the collective resources of all the states, wars will become larger and last longer as the central state has less incentive to settle conflicts.

What history seems to show is the opposite of Jay’s prognosis. Instead of greater peace through a union government manned by the country’s wisest men who stood above petty squabbles, the country saw a great deal of warfare, internal and external, linked to expansion and promoted and aided by a strong central government that grew stronger and stronger over time. The federal government looks to have been the engine of greater and more severe warfare, rather than less.

Michael S. Rozeff [send him mail] is the Louis M. Jacobs Professor of Finance at University at Buffalo.

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