Neither Watchman nor Revolution: Government, Capability, and the Logic of Collective Learning
Don't overthrow government. Evolve it.
Practical men, who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist. Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back.
— John Maynard Keynes, The General Theory of Employment, Interest and Money (1936)
There is a question that lies beneath every argument in this series of essays — beneath the claim that taxation is a public service, beneath the convergence of the benefit principle and the ability-to-pay principle, beneath the evidence that some countries deliver on capitalism’s promise while others do not. The question is this: what was the government legitimately doing in the first place?
Without an answer, the downstream arguments float free of their foundation. If the libertarian is right that government’s proper role ends at the watchman functions — enforcing property rights, protecting physical security, adjudicating disputes — then the “benefit” against which tax and civic obligation is measured is far smaller than this series assumes, and the restorative justice argument has no anchor. The libertarian objection, stated at its strongest, is not that government is incompetent or corrupt, though it may be both. It is that government is overbuilt — that it does too much, that everything beyond the watchman minimum is coercive overreach dressed up as public service.
But the libertarian is not the only objector. The revolutionary — in a tradition that long predates Marx, running through him to the various socialisms of the twentieth century — arrives at an equally sweeping rejection from the opposite direction. The institutional order is not overbuilt, on this view; it is irredeemably captured. The welfare state, the regulatory apparatus, the rule of law itself — these do not represent genuine reforms but the permanent co-optation of state power by capital. Tinkering within the system cannot work. The only honest response is to sweep the existing order away and replace it with something built on different foundations.
These sound like opposite positions. One wants government cut back to a principled minimum; the other wants the entire institutional structure replaced. But they share a deeper common structure, and that shared structure is what this essay addresses. Both treat the state capacity available at a particular historical moment as a permanent verdict on what institutional development can accomplish. The libertarian looks at the seventeenth century and before — when the watchman state was genuinely the ceiling of what people knew how to build as collective institutions — and concludes that the watchman state is the principled limit for all time. The revolutionary looks at the nineteenth century — when the administrative tools that might have made capitalism reformable barely existed — and concludes that capitalism is permanently unreformable within any institutional framework. Both positions were approximately defensible given the evidence available when they were formed. Both have been overtaken by a century of institutional learning for which neither can adequately account. And both, as a consequence, demand that learning stop at precisely the point where it becomes inconvenient for their preferred conclusions.
This essay argues that both objections fail — for the same reason. The mandate of government is not fixed by the institutional frontier of any particular century. It is indexed to ever-changing state capacity: to what we have collectively learned to do, and to what, having learned, we therefore may be obligated to do. That is Lincoln’s criterion for the proper scope of government, and it is where this essay begins.
I. Lincoln’s Criterion for the Proper Scope of Government
Abraham Lincoln left behind an unfinished fragment, written around 1854, that contains one of the most useful sentences in the literature on government’s proper role. Lincoln wrote:
The legitimate object of government, is to do for a community of people, whatever they need to have done, but can not do, at all, or can not, so well do, for themselves — in their separate, and individual capacities. In all that the people can individually do as well for themselves, government ought not to interfere.
— Abraham Lincoln, “Fragment on Government” (c. July 1, 1854)1
Each phrase of that criterion carries weight, and the unpacking rewards care.
“Need to have done” — not merely useful or convenient, but required for the functioning of a decent society. Lincoln is not saying that government should do whatever people would prefer not to do for themselves. He is setting a threshold: something that the community genuinely needs.
“Cannot do” — structural impossibility or inadequacy. This is not about preference or inconvenience. It is about whether private action, however well-intentioned and well-resourced, can actually accomplish what is needed.
“So well do” — and here is the crucial qualification that makes the criterion dynamic rather than static. Government is warranted not only when private action is impossible but when it is inadequate. The test is comparative: can the community do this better together than separately? If yes, and if the need is genuine, the mandate applies.
There is a fourth element, implicit but essential: a cost-benefit constraint. The mandate applies when collective benefit is reasonably expected to exceed collective cost — where cost is understood broadly to include not only financial expenditure but lost freedoms, constraints on private action, administrative burden, and unintended consequences of any kind. But this constraint must be applied symmetrically. Opportunity costs are real in both directions. A government that could prevent structural harm and does not is not neutral; it is choosing the costs of inaction as surely as an interventionist government chooses the costs of action. A genuine cost-benefit accounting counts the costs of not having public health surveillance, deposit insurance, or financial system stability alongside the costs of providing them. The asymmetric version — which counts the costs of action but not the costs of inaction — is not economics. It is ideology dressed as analysis.
The Fiduciary Obligation to Act
Lincoln’s criterion, so understood, is both descriptive and normative. It asks what government can do, and from the answer begins to derive what government should do. But scope alone does not settle the question of obligation.
If government’s legitimate object is to serve the community’s needs — as Lincoln’s criterion presupposes — then a government that has developed the capacity to meet a genuine need, at reasonable cost, and declines to do so is failing its own stated purpose.
Establishing that something falls within government’s legitimate scope — that it satisfies Lincoln’s criterion — is necessary but not sufficient to create an obligation to act. Scope defines the domain within which government may legitimately operate; an obligation to act arises only when three additional conditions coincide: a genuine collective need, sufficient state capacity to address it effectively, and a reasonable expectation that collective benefit will exceed collective cost.
Where all three conditions are clearly met, government is obligated to act. Where they are partially met — the need is real but capacity is still developing, or the cost-benefit calculation remains uncertain — there is a reasonable expectation of action as conditions mature, but not yet a full obligation. Where none are met, neither obligation nor expectation arises.
This three-condition test prevents the expansion of legitimate scope from becoming an unlimited warrant for government action. A government that has developed the capacity to do something it has no genuine need to do, or whose intervention would cost more than it delivers, is not thereby obligated to act. Lincoln’s criterion opens the door; the three conditions determine whether obligation requires walking through it.
This positions Lincoln between two inadequate alternatives. The libertarian freezes the criterion at a historical moment, treating the contingent limits on state capacity in the seventeenth century as if they were a permanent principle derived from the nature of government itself. The unrestricted progressive untethers the mandate from capacity and need entirely, asserting that government should do whatever justice requires regardless of whether the three conditions are met. Lincoln threads between them: the domain of legitimate government action expands as state capacity grows, but the obligation to act within that domain is disciplined by genuine need and honest cost-benefit accounting.
II. The Watchman State as the Limit of State Capacity
The minimal state that libertarians defend was codified at a particular moment in history. At that moment, it was also roughly the maximum of what people had yet learned to do collectively through government. The coincidence is worth examining.
Before going further, a word about the term “watchman state” itself — because its origin is instructive. The phrase was coined not by a libertarian but by Ferdinand Lassalle, the nineteenth century German labor organizer and socialist, in a speech delivered in 1862. Lassalle used it as a term of contempt. The bourgeois conception of the state, he argued, was nothing more than a Nachtwächter — a night-watchman — whose sole function was to prevent theft and burglary. This, he said, was “a policeman’s idea,” and he drew out its logical implication with characteristic sharpness: if the state exists only to protect property from thieves, there would be no reason for a state at all if thieves did not exist. Libertarians and minarchists subsequently reclaimed the term as a badge of honor, apparently without noticing — or without minding — that they were adopting a label coined specifically to mock their position. Keynes observed that practical men who believe themselves exempt from intellectual influence are usually the slaves of some defunct economist. The watchman state is a case in point: a concept distilled from an 1862 socialist pamphlet, whose original critical force may have been forgotten by those who now wave it as a flag.
The irony deepens when we notice the date. Lassalle coined the term in 1862. Marx published the first volume of Capital in 1867. The watchman and the revolutionary are not opposites from different eras. They are contemporaries, arguing within the same nineteenth century intellectual moment, about the same set of industrial-era problems, against the same backdrop of underdeveloped institutions. This essay’s title names both prescriptions for government in order to decline both — and the fact that both belong to the same historical moment is part of the reason why.
Consider what people in early modern societies could accomplish collectively through government. They could enforce peace within their territory — imperfectly, but substantially. They could define and protect property rights, adjudicate disputes through courts, field armies for external defense. They could, in short, do the things that Hobbes and Locke described as the essential function of government: maintaining the sovereign order that made civil society possible. These are genuinely important functions, and nothing in this essay diminishes them. The Hobbesian baseline — the minimum institutional order without which economic life above subsistence cannot exist — is real, and communities that fail to provide it produce misery in abundance.
But what people in early modern societies could not yet do collectively is equally important to the argument. They could not regulate food safety — bacteriology did not exist, and the germ theory of disease was not established until the late nineteenth century. They could not provide unemployment insurance — the administrative machinery to identify eligible workers, collect contributions, process claims, and distribute payments at population scale did not exist and had not been imagined. They could not manage a central bank or conduct macroeconomic stabilization — the theoretical framework that would make such management possible was not developed until the twentieth century. They could not pool health risk at population scale — actuarial science was in its infancy and the administrative capacity to implement social insurance programs had not been built.
The minimal state, in other words, was not a principled choice. It was the ceiling of what people had yet learned to build as collective institutions. Hobbes and Locke were describing the institutional frontier of their time, not deriving a permanent limit from the nature of political authority. Hobbes’ Leviathan is a remarkable work of political philosophy; it is not a permanent constitution for government’s scope.
One further note on Hobbes: his “state of nature” — the war of all against all from which the sovereign rescues us — is best understood as a theoretical construct about what social life would be like without institutional order, not as a historical description of what pre-political societies were actually like. Anthropological and archaeological evidence suggests that human communities before the state were considerably more cooperative and socially organized than Hobbes’s picture implies. The analytical baseline — the point that institutional order creates possibilities that disorder forecloses — survives this critique. The historical picture does not. And noting this matters, because the libertarian argument for the minimal state often depends on presenting the Hobbesian baseline as the natural default to which we return when government is reduced, rather than as a theoretical abstraction that has never precisely existed.
Robert Nozick’s minimal state, the most rigorous philosophical reconstruction of the libertarian position, has similarly never existed at the scale of a modern economy. It is a theoretical construction — admirable in its internal consistency, essential to engage seriously, but not a historical baseline to which we might return. The question is not whether to go back to something that once was. The question is how to move forward from where we are.
The libertarian error is specific: it treats a historical limit on state capacity as a normative boundary. The fact that government couldn’t do X in 1651 or 1862 does not mean it shouldn’t do X in 2026. That inference requires an additional premise — that the state capacity ceiling of the seventeenth century reflects a permanent principle rather than a contingent limitation — and that premise is simply false. State capacity grew, and continues to grow. The normative boundary, if the libertarian argument were correct, should have grown with it. The libertarian who concedes that government may legitimately do all that the watchman state could do has already conceded the principle; the argument about scope is then an argument about current state capacity and current need, which is exactly the argument Lincoln’s criterion invites.
III. The Right’s Own Thinkers Against the Watchman Position
There is a temptation, when making the case for an expanded government mandate, to draw primarily on thinkers associated with the political left — Keynes, Rawls, the welfare state theorists. That temptation should be resisted, for a simple reason: the case is stronger than that, and the intellectual honesty of engaging the other side’s best thinkers is itself part of the argument. The expansion of government’s legitimate mandate is not a left-wing imposition. The right’s own best thinkers, read carefully and completely, support it.
Hayek and evolutionary institutionalism
Friedrich Hayek is the most frequently invoked intellectual authority for the minimal state position, and the invocation is almost always based on The Road to Serfdom — the 1944 work that established his popular reputation as the great opponent of big government. The Road to Serfdom is a serious book, more nuanced than its reputation, and it deserves to be read rather than merely cited. Hayek’s argument there is specifically against central planning — the comprehensive direction of economic activity by a central authority. It is not a general argument against government intervention, and Hayek was explicit about this: he endorsed a social safety net, public health measures, and regulation of working conditions in the text itself, in passages his libertarian admirers tend to skip.
But the more important point is what Hayek argued in his mature work — The Constitution of Liberty (1960) and Law, Legislation and Liberty (1973–79) — which most conservatives seem not to have read because it is considerably less convenient than The Road to Serfdom. Hayek’s central argument in those works is that social institutions embody accumulated knowledge that no individual mind could reconstruct — knowledge dispersed across millions of participants, encoded in rules and practices that have survived because they work, not because anyone designed them to. Institutions evolve through a selection process: what works is retained, what fails is discarded.
Read consistently, this argument supports the welfare state. The welfare state is precisely what survived a century of evolutionary selection across virtually every developed democracy. It was not imposed by central planners; it emerged through democratic competition, institutional experimentation, and the retention of what worked. The libertarian proposal to replace the evolved state with a theoretically derived minimal state is precisely the rationalist constructivism Hayek warned against: replacing institutions shaped by historical experience with a theoretical model of how society ought to work. Hayek’s own argument, applied honestly, counsels respect for what has survived, not for what a theoretical model says should have survived.
There is also a deeper point about Hayek’s epistemic argument against central planning. Hayek objected that central planning requires knowledge that the state doesn’t have — the dispersed, local, tacit knowledge that only markets can aggregate. This is a powerful argument, developed most fully in his 1945 essay “The Use of Knowledge in Society.” But it is a conditional argument about current state capacity, not a permanent structural barrier. The same logic that says “the state shouldn’t do X because it lacks the knowledge to do it well” implies “the state should do X once it develops the knowledge to do it well.” This is Lincoln’s criterion restated in Hayekian terms. Hayek identified a real problem — the knowledge problem — without recognizing that the problem has a solution: institutional learning and development. States can, over time, find new ways to obtain relevant knowledge and develop the capacity to act in domains where they were once genuinely incompetent. To exclude all information-requiring government action because the state once lacked the information is an unnecessarily permanent solution to a contingent problem.
Burke and the conservative case for evolved institutions
In 1790, Edmund Burke made the conservative case for respecting institutions that have survived. His argument against the French Revolution was not that the ancien régime was good — it was that destroying evolved institutions in favor of abstract principles derived from pure reason was Jacobinism,2 and Jacobinism ends badly. Whatever emerges from revolutionary rupture is likely to be worse than what was replaced, because what was replaced had at least been tested by time.
This argument cuts sharply against contemporary libertarian institutionalism. The welfare state, the regulatory apparatus, the central bank, social insurance — these have survived. They emerged through a century of democratic deliberation, institutional experimentation, and political competition. By Burke’s own standard, proposals to dismantle them in favor of a theoretically derived minimal state are the radical position. The Burkean conservative should be the defender of the institutional status quo, not its opponent. True conservatives should be devoted to the preservation of those institutions that have proven themselves successful. Today’s small-government institutional demolitionists, whatever they may call themselves, are, by Burke’s standard, the Jacobins.2
Smith and the invisible hand, correctly read
Adam Smith is the libertarian’s most frequently invoked authority, and the invocation is based almost entirely on the concept of the invisible hand — the idea that individuals pursuing their own interests are, as if by an invisible hand, led to promote the public interest. This has become the foundational metaphor for the claim that markets, left alone, produce optimal outcomes and that government intervention can only make things worse.
The metaphor appears exactly three times in Smith’s published work. In The Wealth of Nations, it is a narrow observation about one specific mechanism: the preference of domestic over foreign investment. It is not a general theorem about market optimality. It is not Smith’s central argument. It is a passing observation in a much larger work that spends Book V detailing the extensive and legitimate functions of government — roads, education, defense, the administration of justice, and more.
More importantly, Smith was deeply suspicious of the merchants and manufacturers whose interests the libertarian reading of him is most inclined to protect. His warning about collusion is direct and famous: “People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the publick, or in some contrivance to raise prices.” The invisible hand works when competitive conditions are maintained. Smith understood that those conditions do not maintain themselves — that concentrated private interests will, if unchecked, systematically undermine the competitive markets that make the invisible hand mechanism operate. The libertarians who cite Smith against regulation are making exactly the error Smith warned against: assuming the mechanism works regardless of the institutional conditions that are necessary for it to function.
Friedman and the negative income tax
Milton Friedman is among the most prominent conservative economists of the twentieth century and a vigorous opponent of many forms of government intervention. But in Capitalism and Freedom (1962), Friedman proposed something remarkable: a negative income tax — a universal basic income delivered through the tax system, providing every household with a guaranteed minimum income regardless of circumstances. This was at the time a genuinely novel institutional form, something government had never done before in quite that way. Friedman’s proposal concedes, at minimum, that the state has a legitimate insurance function that goes beyond pure market failure correction in the traditional sense, and that new institutional forms for discharging that function are worth developing. A consistent advocate of the watchman state cannot endorse the negative income tax. Friedman endorsed it anyway.
Nozick’s legitimacy condition
Robert Nozick’s Anarchy, State, and Utopia is the most rigorous philosophical defense of the minimal state. Nozick argued, correctly, that redistribution to achieve preferred distributional patterns is morally problematic — it treats individuals as means rather than ends, using some people’s holdings to serve others’ visions of the good society. This is a serious argument that deserves serious engagement, and this series engages it seriously in other essays.
But Nozick’s argument depends entirely on an assumption that is frequently overlooked: that existing holdings are legitimately acquired. His entire framework rests on this. If holdings were not legitimately acquired — if they rest, as so many concentrated fortunes do, on rent extraction, monopsony power, state-backed coercion, or the appropriation of what belongs to the community — then Nozick’s own principles condemn them. Correcting illegitimate holdings is an application of Nozick’s entitlement theory, not a violation of it. The libertarian who invokes Nozick against redistribution without examining the legitimacy of existing holdings is using Nozick selectively — accepting his conclusions while ignoring his premises.
IV. A Taxonomy of Government Functions
The preceding section argued against the libertarian case for limiting government to the watchman minimum. But arguing against a limit is not the same as describing what a properly understood government should be and do. That requires a positive account — a taxonomy of the functions that Lincoln’s criterion, applied honestly and systematically, actually warrants. That is what this section provides.
Before working through the categories, a clarification is needed about the economic concept most often used to justify government action.
A public good, in the technical sense that economists use the term, has two properties. It is non-excludable: once it is provided, you cannot prevent people from consuming it, whether or not they contributed to its provision. And it is non-rival: one person’s consumption does not diminish what is available to others. National defense is the canonical example: it protects everyone within the territory regardless of who paid for it, and protecting one citizen does not reduce the protection available to others. Clean air, lighthouses, the rule of law, and public knowledge are similar.
These properties together create a market failure: since non-payers cannot be excluded, no private actor can capture enough of the benefit to justify the cost of provision. The provision of public goods is therefore systematically neglected by markets, and government provision is warranted on straightforward economic grounds.
But here is what matters for the argument that follows: the coincidence that the most historically familiar and intuitive government functions — watchman and infrastructure — happen to involve public goods in the technical sense has contributed to a widespread but mistaken impression that the provision of public goods exhausts the economic case for government action. It does not. The provision of public goods is the first and most visible category of justified government action, but not the last. The others follow from different but equally compelling market failures — adverse selection, catastrophic tail risk, uninternalized externalities, natural monopoly, and coordination problems — each with its own logic, and each satisfying Lincoln’s criterion through a different mechanism. The state of knowledge in 1776, when Adam Smith wrote, or in 1854, when Samuelson’s formalization of public goods theory still lay a century in the future, did not yet provide the analytical tools to see this. We have those tools now.
The four categories are: foundational functions, risk and stability functions, investment functions, and constitutive functions. Each is examined in turn.
Foundational Functions
The watchman functions — property rights enforcement, contract law, physical security, the legal infrastructure within which economic life takes place — are public goods in the strict sense. Everyone benefits from a common legal order, no one can exclude themselves from it, and no private actor has the incentive or scale to provide it at the level a modern economy requires. These functions are the Hobbesian minimum. Without them, economic life above subsistence is impossible, and everything else in this taxonomy rests on them.
But even this most minimal category carries a lesson the libertarian position tends to miss. The watchman state is not cheap, not simple, and not self-sustaining. Property rights must be defined, constantly re-adjudicated as circumstances change, and defended against attempts to capture or corrupt them. Contract law must evolve to cover new forms of transaction. Legal infrastructure requires professional training, institutional maintenance, and ongoing investment. The “minimal state” is more demanding than its advocates typically acknowledge — and that recognition is the thin edge of the wedge against the watchman-state position as a stable resting point.
Infrastructure extends the foundational category. Physical networks — roads, railroads, electrical grids, the Internet backbone — involve natural monopoly: network economics favor consolidation to the point where competition either cannot survive or produces unnecessary duplication. Institutional standards — weights and measures, time zones, technical protocols — require coordination: someone must establish the standard, and once established, everyone benefits from using it regardless of who did the establishing. The monetary system and the payments system require scale and trust that no private actor can unilaterally provide. These are things individuals genuinely cannot do as well for themselves in their separate, individual capacities. Lincoln’s criterion is plainly satisfied.
Risk and Stability Functions
Social insurance — health coverage, unemployment benefits, disability protection, deposit insurance, pension security — is not a public good in the technical sense. Benefits are excludable (you can prevent specific people from receiving them) and rival (a dollar paid to one beneficiary is unavailable to another). The market failure that justifies government provision here is of a different kind, and it is important to be precise about what it is.
The first is adverse selection. Voluntary insurance markets face a structural problem: those most likely to need the insurance are most likely to buy it, while those least likely to need it have less reason to participate. As the risk pool skews toward high-risk participants, premiums rise; as premiums rise, more low-risk participants exit; as they exit, the pool skews further. Private health insurance without compulsory participation tends toward this death spiral — it is not a problem that can be solved by better products or more competition, because it is a structural consequence of voluntary participation in the presence of information asymmetry. Compulsory participation solves the problem by preventing adverse selection from operating. This is something we have learned — and it would have seemed draconian, or simply unnecessary, before the mechanism of adverse selection was understood.
The second is catastrophic tail risk. Some losses are simply too large relative to individual resources for private insurance to pool adequately across the full population. A serious cancer diagnosis, a prolonged disability, the loss of a job at the wrong moment in an economic cycle — these can exhaust a lifetime of savings. Adequate pooling requires a population large enough and diverse enough that the law of large numbers operates effectively, and that typically requires either compulsion or very substantial government involvement.
The third is macroeconomic externality. Unemployment insurance does something that private insurers cannot provide as a product: it maintains consumer spending during recessions, dampening the downward multiplier effect that would otherwise amplify economic contractions. This macroeconomic stabilization benefit accrues to everyone operating in the economy, but no private insurer can capture it. It is, in effect, a public good produced as a side effect of what looks like a private insurance arrangement.
Macroeconomic stabilization itself — the management of aggregate demand to control inflation, the automatic stabilizers, the maintenance of financial system stability — is a public good in the strict sense. Stable prices and full employment, once achieved, benefit everyone in the economy and cannot be withheld from those who did not contribute to achieving them. No private actor has the scale to manage aggregate demand; the attempt by central banks and fiscal authorities to do so is precisely the kind of collective action that Lincoln’s criterion captures. Individually rational financial behavior is, under some conditions, collectively destabilizing — the bank run is the canonical case, but the financial panics of the nineteenth century and the 2008 financial crisis are the large-scale versions. Government provision of financial stability corrects a market failure that private actors cannot solve for themselves.
Investment Functions
Markets systematically underinvest in knowledge production. Knowledge, once created and published, is non-rival — my knowing the structure of DNA costs you nothing — and largely non-excludable — once the paper is published, the idea is out. Private firms can capture some of the returns to knowledge through patents, trade secrets, and first-mover advantages, but they cannot capture the full social return. The gap between private and social returns is the measure of underinvestment, and it is large. The entire modern technology economy rests substantially on publicly funded basic research: the Internet emerged from DARPA, the World Wide Web from CERN, the pharmaceutical revolution from NIH-funded basic science, the semiconductor industry from government research programs and procurement. None of these would have been privately funded to the degree necessary, because no private investor could have captured enough of the return to justify the investment.
Public education is the human capital case. The returns to education accrue partly to the individual — in higher lifetime earnings — partly to employers — in a more productive workforce they did not pay to train — and partly to society in ways that markets cannot capture at all: civic participation, scientific progress, the cultural and political life of a community. Each private employer free-rides on the educated workforce that public investment in education created. Left to private provision alone, education would be systematically underprovided, concentrated among those who can afford it, and oriented toward immediately marketable skills rather than the broader formation that a democratic society requires.
Long-horizon investment presents a different problem. Private markets discount the future at rates that reflect investors’ time preferences and the opportunity cost of capital. Those rates are, from the perspective of society as a whole and of future generations who cannot bid in today’s markets, too high. Environmental protection, infrastructure maintenance, and scientific infrastructure are chronically underinvested by markets because their returns accrue over time horizons that private investors systematically underweight. Future generations have genuine interests in decisions made today — interests that the market cannot represent, because future people cannot buy and sell in current markets.
A contemporary example makes the state capacity threshold argument vivid. We have only recently learned that the thymus is the organ responsible for maintaining the immune system’s capacity to adapt to novel threats — training the T-cells that are the immune system’s learning arm. After early adulthood, the thymus undergoes a process of involution: it gradually loses function, and with it the immune system progressively loses its capacity to respond to pathogens it has not previously encountered.3 The consequences accumulate with age: reduced response to novel infections, reduced response to vaccines, increased susceptibility to cancers and other conditions that a fully functional immune system would suppress.
We have recently crossed a threshold in understanding this process well enough to ask whether the functional decline of the thymus can be interrupted or reversed. The social returns from answering that question affirmatively would be enormous — longer, healthier lives, substantially reduced late-life healthcare costs, maintained cognitive and immune function in aging populations. But no pharmaceutical company can capture enough of that value to justify the basic research investment. The returns are too diffuse, too long-horizon, and too difficult to appropriate. This is precisely the kind of investment that Lincoln’s criterion requires government to make: something people need done that they cannot do as well for themselves, at a cost that is reasonably expected to be exceeded by the collective benefit. The capability threshold has been crossed in real time, making newly obligatory what was recently impossible.
Constitutive Functions
The first three categories all rest, ultimately, on market failure arguments of one kind or another. The constitutive functions are different. They rest not on the failure of markets to provide something but on the right of a self-governing community to decide what kind of community it wants to be.
Public libraries, national parks, arts funding, historic preservation, public broadcasting — these are not justified primarily by market failure, though market failure arguments can sometimes be constructed for them. They are justified by the democratic community’s decision to express certain values collectively, to maintain certain shared spaces and cultural goods, to preserve certain things for their own sake rather than for their market value. Lincoln’s criterion in the narrow sense — the community cannot do this as well for itself — may not always be strictly satisfied here. Democratic self-determination provides the justification instead.
Redistribution, properly understood, belongs here — but as a much more constrained category than progressive politics typically assumes. Most of what is framed as a case for redistribution is better understood as restoration: returning to households and communities the surplus that rent extraction, monopsony power, and state-backed coercion transferred upward. Restoration is not redistribution. It corrects illegitimate transfers rather than overriding legitimate holdings, and it has a natural stopping condition — when the extraction has been corrected — that redistribution lacks. The moral logic is entirely different: restoration says that wealth was taken from you; redistribution says that someone else’s need is greater than your entitlement. Both may lead to a transfer of resources, but they are grounded in fundamentally different claims.
Restoration is not unlike what Nozick called rectification — the correction of unjust acquisition and transfer, which his entitlement theory not only permits but requires. The moral logic is similar: correcting what was wrongly taken is justice, not redistribution. Whether Nozick’s own principle, as he developed it, reaches the full range of extractions that restoration addresses is a question for another occasion.
What remains after restoration has done its work is the genuinely residual redistributive category: inequality that persists because it reflects differences in circumstances of birth that individuals did not choose — the family into which one is born, the community in which one grows up, the natural talents with which one arrives. A democratic community may legitimately decide, through its normal political processes, that children should not bear the full consequences of their parents’ failures, or that human dignity requires a material floor regardless of market outcomes. These are genuine moral claims. But they are claims about the residual inequality that remains after the more powerful claim — that most of what looks like inequality is extraction that should never have occurred — has been addressed. Treating redistribution as the primary tool for addressing inequality, before restoration has done its work, obscures the more fundamental problem and generates a weaker and more contested response to it.
Finally, fiscal citizenship. Edwin Seligman, the great American tax theorist of the early twentieth century, argued that membership in a political community generates obligations that are not reducible to either market failure correction or benefits received. Citizens and government are partners in a joint project — the maintenance and development of the institutional order that makes civil and economic life possible. Taxation, on this view, is not a price for services rendered or a cost imposed by state power. It is a form of civic participation, an expression of the partnership rather than a burden extracted from it. This dimension of taxation — the dimension that pure technical analysis cannot capture — is developed more fully in other essays in this series.
V. The Learning Dynamic
The taxonomy in the previous section is not a list of ideological preferences. It is what centuries of institutional learning have built.
Each category of government function became possible — and therefore, under Lincoln’s criterion, necessary — at a specific historical moment when state capacity crossed a threshold. Before the germ theory of disease, public health regulation was not possible; there was nothing coherent to regulate toward. Before actuarial science and modern public administration, social insurance was not possible; the machinery to implement it did not exist. Before the development of macroeconomic theory in the twentieth century, stabilization policy was not possible; there was no framework within which it could be conducted. Before the modern research university and the institutional infrastructure of basic science, large-scale public investment in knowledge production was not possible in the organized way we now take for granted.
The watchman state was not abandoned on ideological grounds. As state capacity grew, it was supplemented. The watchman functions remained and remain foundational. Each new category was added as a new capacity threshold was crossed, and each addition satisfied Lincoln’s criterion at the moment of its addition: something people needed done that they could not do as well for themselves, at a cost that collective benefit exceeded.
Two levels of learning must coincide for a new capacity threshold to become operational. The first is technical: germ theory, actuarial mathematics, macroeconomic theory, network engineering, epidemiology. The second is institutional: the civil service that can administer programs without corruption, the regulatory agencies that can apply technical knowledge to practical problems, the central bank that can conduct monetary policy, the public health infrastructure that can implement what the science recommends. Technical knowledge without the institutional capacity to deploy it is insufficient — a point the early Progressive Era repeatedly demonstrated. The ideas often existed before the machinery to implement them did, and the gap between idea and implementation was measured in decades.
The expansion of government’s mandate over the past two centuries has the structure of evolution. Variation comes through institutional experimentation — different countries and different periods trying different approaches to common problems. Selection occurs through democratic accountability and empirical performance — what works gets retained, what fails gets reformed or discarded. The welfare states that survived the twentieth century are not the ones that were theoretically optimal; they are the ones that worked well enough to retain popular support and to adapt when they didn’t. This is what Adam Smith described for markets, applied to the collective institutions that capitalism requires. It is not planning. It is adaptation.
Hayek’s insight that evolved institutions embody accumulated knowledge applies here with full force. The welfare state embodies a century of accumulated knowledge about how to address problems that markets cannot solve — problems of adverse selection, catastrophic risk, macroeconomic instability, knowledge underinvestment, and constitutive self-determination. It emerged through exactly the evolutionary selection process Hayek described. The libertarian proposal to dismantle it in favor of a theoretically derived minimal state is precisely the rationalist constructivism Hayek warned against — substituting a theoretical model for the accumulated wisdom of what has actually survived.
Two Groups Frozen at Different Levels of State Capacity
This history of institutional learning also helps explain why certain influential theories of the state continue to misread the trajectory of modern governance. Both the libertarian and the orthodox Marxist make the same structural mistake, just at different centuries.
The libertarian is frozen at the seventeenth century state capacity ceiling. The watchman state was the operational limit of Hobbes’s time; the libertarian treats it as the principled limit of all time. This is a mistake of category: a contingent constraint on state capacity is mistaken for permanent principle.
The orthodox Marxist is frozen at the nineteenth century ceiling. Marx’s conclusion that capitalism was unreformable — that the gap between its promise and its reality was too fundamental to be closed through institutional reform — was, in its time, an empirically grounded assessment of what the available state capacity could accomplish. Marx’s despair was well-founded. The administrative state barely existed. Civil service was in its infancy. There was no central banking worthy of the name, no securities regulation, no antitrust law, no progressive income taxation, no unemployment insurance, no labor law protecting collective bargaining. The franchise was restricted to property owners in most places. Given those constraints, the conclusion that the working class could not achieve meaningful reform through political processes was not unreasonable. It was approximately correct given the state capacity Marx could observe. In Marx’s time the administrative machinery required to reform capitalism simply did not exist. The century that followed would build precisely that machinery, often in response to the very problems Marx had identified.
The New Deal, the welfare state, central banking, antitrust enforcement, progressive taxation, labor law, the extension of democratic participation to the full adult population — these are precisely the institutional responses that Marx’s framework said were impossible within capitalism. They were built not everywhere, not completely, and not without capture and backsliding, but substantially across the developed world. Their existence is an empirical challenge to the impossibility claim, even if they remain incomplete and contested.
The orthodox Marxist response — that these institutions merely legitimate capitalism without fundamentally altering it, that they represent co-optation rather than genuine reform — is structurally identical to the libertarian’s dismissal of evidence that government intervention can work: in both cases, the theory is insulated from empirical falsification rather than updated in light of evidence. When evidence that should challenge a theory is explained away as the theory’s prediction, the theory has become a doctrine.
There is a further irony in the Marxist case. Marx’s own method — historical materialism, the insistence that analysis must be grounded in the material conditions of its time — argues directly against treating his nineteenth century conclusions as permanent structural truths. A genuinely Marxist analysis of twenty-first century capitalism, conducted with Marx’s method rather than frozen in his conclusions, would have to grapple seriously with the vastly more capable administrative state, democratic accountability, and the empirical record of welfare state capitalism. The Marxists most faithful to Marx’s method are probably not the ones most faithful to his conclusions.
The Immune System as Model
The immune system is an adaptive learning architecture. It does not arrive pre-programmed with responses to every pathogen it will encounter. It has a learning structure — a capacity to encounter novel threats, generate responses, retain what worked, and build those responses into a catalog of acquired immunity. It is, in Hayek’s terms, an evolved institution for managing biological risk.
At the center of this learning structure is the thymus. The thymus is where T-cells mature and are trained — where the immune system learns to distinguish self from non-self, friend from threat. Through this process, the immune system continuously updates its capacity to respond to novel pathogens.
But the thymus undergoes involution after early adulthood. It gradually loses function, and with it the immune system progressively loses its capacity to learn. An aging immune system can fight the threats it learned to recognize when young; it responds poorly to threats it has not previously encountered. The decline in adaptive immunity with age is not a design feature; it is a failure mode. An immune system that can only fight yesterday’s pathogens becomes progressively less capable of meeting the challenges that a changing biological environment generates.
The parallel to government is direct. The watchman state is the government that developed the state capacity to respond to the threats and collective action problems of the eighteenth century and before. It learned well. But the institutional thymus — the capacity for government to keep learning, to develop new responses to new problems as they emerge — is precisely what the libertarian position would suppress. A government constitutionally prohibited from building new state capacity is not a minimal state. It is a government with thymic involution: capable of addressing the threats it learned to recognize at the watchman stage, progressively unable to respond to the novel challenges that a more complex economy and society continuously generates.
The revolutionary position produces a different failure mode: rather than involution, rupture. Destroy the existing immune system and build a new one from scratch. The problem is that immune systems carry crucial memory — accumulated knowledge about threats encountered, responses refined, failures corrected. Destroying them destroys that knowledge. The new system must begin learning from zero, vulnerable to everything until it has rebuilt what was lost. Revolutionary rupture with existing institutions faces exactly this problem: the accumulated institutional knowledge embedded in what is destroyed does not automatically transfer to what replaces it.
The Demand to Stop Learning
Both the libertarian and the revolutionary, in their different ways, are asking that institutional learning stop.
The libertarian asks that we freeze government at the watchman stage. The revolutionary asks that we treat capitalism as permanently unreformable and stop trying to improve it. Neither is claiming that learning is impossible. Both are claiming that learning should stop at the point where it becomes inconvenient to their preferred conclusions.
This is not analysis. A government deliberately kept incapable of addressing problems it could address is not a minimal state. It is a chosen failure. An economic system declared permanently unreformable despite a century of evidence to the contrary is not rigorous theory. It is a doctrine. The learning dynamic makes both demands untenable on the same grounds: the conditions that made those positions approximately correct have substantially changed, and honest analysis must change with them.
VI. Fiduciary Accountability
State capacity and obligation expand together. This is not merely an observation about the growth of the state; it is a claim about accountability. A state that has developed the capacity to prevent the extraction of the community’s share of the wealth the institutional order enables, and then stops doing so — or allows that capacity to erode through regulatory capture — is not taking a neutral position. It is in breach of a duty to the community whose institutional order it was charged to maintain.
The mechanisms that drive structural inability to accumulate among lower-income households — rent extraction from concentrated housing markets, wage suppression from concentrated labor markets, asset concentration self-reinforcing through the returns to capital, extractive credit arrangements that capture rather than enable — are partly state capacity failures. The capacity to address these problems was developed. Antitrust law, labor law, progressive taxation, financial regulation — these represent the hard-won expansion of state capacity to prevent the reconcentration of wealth that unrestricted market dynamics tend to produce. In many cases that capacity was allowed to erode: regulatory capture, judicial reinterpretation, legislative attrition.4 The failure is not the absence of government. It is government in breach of its own mandate.
What distinguishes countries that achieved broad-based accumulation from those that received similar initial conditions but ended in oligarchy is not the starting point. It is institutional follow-through — the state’s continuous discharge of its duty to maintain the conditions under which the institutional order’s benefits are broadly shared. Rule of law rankings, read carefully, measure something more specific than procedural justice. They measure the degree to which the state actually discharges this duty rather than being captured by those most able to benefit from its neglect.
The full development of this argument — including the concept of the community as equity partner in the wealth the institutional order enables, and the evidence from cross-country comparison — belongs in companion essays. This essay’s contribution is to establish the legitimate mandate that makes the fiduciary role possible in the first place. The state cannot be held accountable for failing to protect what it was never legitimately charged to protect. Once the mandate is established — and this essay has argued that it is real, grounded in Lincoln’s criterion, indexed to state capacity, and validated by the evolutionary selection of what actually works — the accountability follows.
VII. Conclusion: Institutional Maturation, Not Scope Creep
The four categories of government functions described here are not a wish list. They are a record of learning.
The watchman state was not wrong. It was doing everything its state capacity permitted, and it was doing what the institutional frontier of its time allowed. Each subsequent category represents a state capacity threshold crossed, a problem identified that people could not address as well for themselves, and an institutional response that survived the evolutionary selection process — surviving not because it was theoretically optimal but because it worked well enough to retain legitimacy and to adapt when it fell short.
The cost-benefit constraint is real and binding in both directions. Government should not exercise state capacity merely because it has it. It should exercise state capacity when the collective benefit exceeds the collective cost, accounting for the costs of inaction as carefully as the costs of action. Opportunity costs run in both directions. The asymmetric version of the constraint — which counts only the costs of government action, never the costs of government inaction — is not economics. It is advocacy.
The process has no endpoint. Complexity, made possible by earlier learning, continuously generates new collective action problems. State capacity continuously approaches new thresholds, making possible what was previously impossible. Democratic communities continuously refine their understanding of what kind of community they want to be. There is no final foreseeable institutional design, no equilibrium state toward which the learning dynamic converges. There are only better and worse responses to the problems of the moment, and the state capacity — or its absence — to develop them.
The essays that follow in this series rest on the foundation laid here. The institutional ecology that legitimate government functions have built over two centuries is what constitutes the benefit against which tax obligation is measured. The state’s authority to act on behalf of the community’s share of the wealth the institutional order enables is grounded in the same legitimate mandate this essay has traced from Lincoln’s criterion through the evolutionary selection of what actually survives. Progressive taxation is not extraction. It is proportional participation in the joint project that made individual achievement possible — the project of building and maintaining the institutional order that capitalism requires.
The watchman says government’s role was fixed at the beginning. The revolutionary says the whole structure must be torn down and rebuilt. Both are rupture strategies — one backward, one forward — and both treat the accumulated institutional learning of the past two centuries as either illegitimate or irrelevant. The evolutionary view offers a third way that is neither timid compromise nor splitting the difference. The institutions we have embody real accumulated knowledge — imperfectly, incompletely, with capture and corruption and backsliding, but substantially. You don’t discard evolved systems because they are imperfect. You reform them, extend them, correct their failures, and build new state capacity where new problems demand it. This is how science progresses, how common law develops, how medicine advances. There is no reason institutional governance should be different.
Don’t overthrow government. Evolve it.
Notes
This essay is the fifth in a series developing the theoretical foundations of equitable taxation. Previous essays: “Why Are Capitalists Anti-Capitalist?” establishes that capitalism requires active institutional construction and maintenance. “Taxation Is a Public Service” develops the functional finance argument for what taxation actually accomplishes in a monetary sovereign. “The Benefit IS the Ability-to-Pay” reunites the benefit principle and the ability-to-pay principle, arguing they were always two expressions of the same underlying moral claim. “Capitalism’s Empirical Test: The US Fails, Czech Republic Passes?” examines the cross-country evidence on whether capitalism delivers on its promise of broad-based accumulation. This essay establishes the foundation that the others assumed: what the government was legitimately doing in the first place.
A skeptic might ask why, if Lincoln believed this, the statement is buried in a working note discovered only after his death rather than championed publicly. The answer is that he did champion it publicly — the fragment was simply unfinished, a working note not yet shaped for a broader audience. The principle it states ran through everything Lincoln did in office: his 1859 address to the Wisconsin State Agricultural Society, his 1860 speeches at New Haven and elsewhere, his support for the Morrill Land Grant Act, the transcontinental railroad, the National Academy of Sciences, the Department of Agriculture. Lincoln was a careful writer who revised extensively; fragments were his working method, not his hidden convictions. The fragment is the compact theoretical statement of a governing philosophy he demonstrated repeatedly in practice. The principle stands or falls on its merits, not on its provenance.
The irony that the loudest opponents of government in our era call themselves “conservatives” would not have been lost on Burke.
Liang, Zhanfeng, Xue Dong, Zhaoqi Zhang, Qian Zhang, and Yong Zhao. 2022. “Age‐related Thymic Involution: Mechanisms and Functional Impact.” Aging Cell 21 (8): e13671. https://doi.org/10.1111/acel.13671.
The institutional development described in this essay draws on three related but distinct metaphors. Societies learn: they accumulate knowledge about how to solve collective problems, and that knowledge compounds over time. Institutions evolve: experimentation across countries and periods generates variation, and democratic accountability and empirical performance select among solutions, preserving what works. And the immune system offers a third angle: it learns to recognize threats, evolves responses through selection, and retains memory of what has worked. Each metaphor illuminates something the others leave in shadow. Learning captures intentionality and accumulation. Evolution explains selection without requiring a designer. The immune system adds what neither of the others provides cleanly: a failure mode — the atrophy of adaptive capacity itself — which is precisely what a government constitutionally prohibited from institutional learning would suffer.