Nozick and Smith’s Libertarianism: Perspectives in Public Policy

Nozick and Smith’s Libertarianism: Perspectives in Public Policy

In this article, we discuss Nozick, Adam Smith, Libertarianism, Minimal Government, Efficiency, Classical Liberalism, and how they apply to public policy.

We have discussed the basic principles of analysing public policy, we have covered Rawls and utilitarians, and we have covered Libertarians policies in practise in the United Kingdom over several aspects:

Monetary Policy






So now we shall cover some of the more theoretical ways of justifying, analysing, and measuring libertarian thought; we turn to two famous thinkers: Nozick and Adam Smith, we provide a mathematical and graphical model of their thoughts, and then we apply those thoughts to a policy (UBI) to show how to measure it.

Nozick’s Principle of Minimal Government:

Nozickian Rights have the idea that it is wrong to injure a person or take their property for any reason, except with his consent (unless that would conflict with someone else keeping their rights, property, or person) (Dworkins, 1977). It is somewhat similar to the Libertarian Non-Aggression Pact. There is also the argument that, for all of the immediate benefits of Liberal/Redistributive policies for the wider society, that these policies will reduce the total efficiency of the economy, reducing 

Mutual Protection and Minimal State:

Government is a binding together against external threats; governments maintain monopoly on force. Government must maintain law, and protection of order (Bellinger, 2007). 

Nozick himself calls this the ‘Nightwatchmen State’, a state that exists only and purely to protect property and person (Dworkins, 1977). The state may not do anything, not even tax, outside of only supporting the police (something that the Libertarians would find very popular).At most, it can uphold the law, reduce the powers and laws of government, and punish those who go against the law.

Just acquisition and just transfer:

Determine which means of acquisition are ethical and which are not; all ethical wealth is a consensual transfer of wealth (Bellinger, 2007).

Nozick explains further: anything gained legally and justly are yours to have and do with (Dworkins, 1977). Nozick argues that any attempt to redistribute money, goods, privileges, etc. is doomed to fail; turn your back for one second, people trade, and inequality returns again. To maintain a state of equality would return constant and patterned interference by the government, which is intolerable in any truly free state. Better to have unequal but consensual freedom than enforced and unlikely equality.

Therefore, people who agree with Nozick (such as Libertarians) tend to believe that any kind of taxation is unethical, as it is without consent (Taxation is Theft).

Moral Side Constraints:

Limits on what individuals and groups may do to pursue their goals. Once limits are set, policies should only meet these goals (E.g. if a society decides that they must provide nutrition for all, a society simply must ensure that they provide the least well-off with food, and no more) (Bellinger, 2007).


One criticism of Nozick is that the rights chosen to be upheld are arbitrary; why is the right to property more important than the right to be concerned about other citizens in your country? Is freedom to consume drugs more important than the potential death of many citizens?

Another argument; Nozick is all or nothing. Why is a small injustice (the taxing of your money to provide schools, education for all, an army, etc) being considered as badly as stopping all trade? Should taxation be placed on the same level as a dictatorship? Nozick doesn’t consider the degree of government interference, that perhaps taxing the exceedingly wealthy 45%, and providing healthcare, policing, etc, is not the same as simply stopping them working. (Dworkins,1977).

Nozick Graphical Representation:

If society were to provide a minimum income level, and use redistribution to get it, we would an L shape due to requirement of that minimum level of utility. We could use either the larger neutral transfer curve, or the smaller non-neutral transfer curve.

A neutral transfer is that which does not affect the behaviour of either party (e.g. the one who loses income will not work less due to reduced profit, nor will the gaining party work less due to free profit).

A non-neutral transfer alters at least one parties behaviour.

Figure 1. A graph showing that, using Utility level (Minimum), any amount of transfer above that utility level would improve the total utility of society (as Rawls would agree). However, Nozick stresses the  voluntary  nature of this transfer; that any amount transferred is sufficient to improve society.

Figure 1. A graph showing that, using Utility level (Minimum), any amount of transfer above that utility level would improve the total utility of society (as Rawls would agree). However, Nozick stresses the voluntary nature of this transfer; that any amount transferred is sufficient to improve society.

At any point between A and B (or A’ and B’, if you use non-neutral transfer curve) would satisfy the condition of improving the minimal level of society…but only if UP1 agrees to it. But any level of charity above that level, consensually given between individuals or organisations, would improve society by the standards of Rawls and the Utilitarians.

Nozick would argue that any level of redistribution is a removal of the right to have property, and that the aggrieved party would have every right (and obligation) to retrieve it, and that the government should not redistribute it, but act as a policeman and return the stolen assets back to their owner.

Example Application:

Once more, we consider UBI (Reed and Lansley, 2016).

Source: Reed and Lansley, 2016

Firstly, tax rates increase by up to 5% per rate, as well as removing the untaxed personal allowance of your first £11,000. Secondly, it increases the spending of the government:

Source: Reed and Lansley, 2016

All of this means that it:

A) Takes more of your money without your consent

B) Increases government power beyond mere ‘nightwatching’.

C) Increases government spending, possibly into deficit spending.

Naturally, Nozickians would refuse this policy. They would support the individuals right to support via charity, but nothing more. Liberty above obligation.

Libertarianism (Smith et. al.)

Adam Smith once wrote (Bellinger, 2007):

“According to the system of natural liberty, the sovereign has only three duties to attend to…first, the duty of protecting society from the violence and invasion of other independent societies; secondly, the duty of protecting, so far as possible, every member of the society from the injustice or oppression of every other member of it, or the duty of establishing an exact administration of justice, and thirdly, the duty of erecting and maintaining certain public works and certain public institutions, which it can never be for the interests of any individual, or small number of individuals, to erect and maintain”

The Government’s Role in Promoting Efficiency:

1) To consider the effects of government intervention in competitive markets through taxes, subsidies, or regulation. Government interventions tend to be less efficient than private industry.

2) Government intervention in imperfect markets will be considered; if a market is imperfectly competitive, a government can intervene to improve that efficiency.

3) Possible inefficiency in the political and administrative processes of government will be discussed with many groups, including stakeholders, upholding laws, etc; leading to those inefficiencies.

Minimal Role of Government:

Laissez Faire; allow the market to operate without government control.

Even when discussing efficiency for helping the poor, it can be done via improving efficiency of the company. For example, making goods so cheap to produce that people have greater purchasing power even as their wages do not change. Making trade so efficient that cheap foods can be imported, increasing consumption of the poor. Making hiring so efficient that people can be given work as easily as possible. If information is not perfectly symmetrical, government education can balance that.


Occasionally, the market does not correct itself (natural monopoly- for example, Disney) and through sheer use of money can alter the shape of the market (buying competition to bury it).

Secondly, just because it is market efficient doesn’t make it the best choice; consider that about 62% of adults in the United Kingdom are overweight or obese (which is about 25%), and that 25% of Americans are class 2 or 3 obese (meaning BMI ≥ 35; healthy is between 18.5-25 BMI) (Donahue, 2018). People have placed short-term enjoyment over long-term health, and individual enjoyment over societal health and longevity.

Thirdly, this system naturally lends itself to massive inequality, which in turn destabilises societies and produces civil and political unrest. This in turn leads to populist gains politically, who often promise massive increases in government spending to compensate for the inequality. It is in short a self-defeating ideology.

Market Efficiency Graphical Model:

When discussing the benefits of government intervention, a traditional model is that of government surplus minus government spending. Regulations have some major problems:

1) Regulations can be made without cost, meaning that supply can be potentially limitless.

2) Regulations that require enforcement require labour and capital, funded via taxes (or fines, potentially)

We can therefore see a mathematical model that looks like this (in regards to taxation):

Figure II. When tax is introduced (Government Surplus), we see the introduction of deadweight loss (utility lost to society), we see a reduced consumer surplus, and we see a smaller producer surplus.

We can see the imposition of the government in the government surplus area; due to the taxation, we see two major harms to three parties:

1) We can see that the consumer surplus has been directly harmed; prices are higher, the quantity enjoyed is smaller, and the consumer surplus (additional utility not touched by market) is smaller.

2) We can see that producer surplus has been directly harmed; they enjoy less profit (part of the final price is given to the government).

3) The society as a whole has been harmed; we can see a section of the market has been completely untouched, and is considered lost; we call it ‘Deadweight Loss’. This change in the market has led to less efficient use of resources for society as a whole. This is the graphical and logical argument against government intervention at all.

Who benefits? According to the Pareto optimisation, society has suffered due to that loss; the government would need to replace the total cost to consumers, producers, and society to make it ‘Pareto optimal’ (Bellinger, 2007).

There is an argument that the government can take that revenue to fund government services, such as police, infrastructure, military defence, subsidies, or redistribution to provide a net benefit to society that compensates for the lost efficiency. Libertarians would argue it is always a net loss; utilitarians may argue it is a net bonus, Rawlsians will believe it is a net bonus if it helps the poorest.

Even supporters for efficiency may argue that the government spending on infrastructure (allowing materials to easily travel for production input, or to sell goods later, or to allow consumers to get your goods) or redistribution (Keynesian economics is based on the idea that poor people spend more of their money than the wealthier, so they tend to be more efficient spendings, e.g. give them $100, they spend $100. Bill Gates hasn’t spent all of his money) to increase your local consumer market.

The ‘China Model’ is based on high government infrastructure projects to both drive local demand (workers tend to be poorer and local) and total productivity of companies due to improving ability to move goods and produce in country; India’s Modi intends to follow himself with a similar model, and One Belt One Road is an exporting of this model to up to 60 countries worldwide (including India and Russia).

However, more traditional Libertarians such as the Austrian or Chicago Schools (under the umbrella of Neo-Classical Economics) will argue against this, and argue that withdrawing government spending will reduce prices without affecting output and employment long-term, and do so more efficiently. Not to mention the above Nozickian argument of liberty, with the government taking your money without the ability to withdraw consent.

Example Application:

Let’s once again apply UBI (Reed and Lansley, 2016). Let’s try to consider how much inefficiency it will create:

Source: Reed and Lansley, 2016

We can see that each year, people will get £2,652 per year, as well as existing benefits. We can assume that if you’re given more money, you will work between 0%-100% less due to more money. As your income increases without work, your motive to work will decrease (by how much depends on the country).

Not only that, but taxation rates are higher on income by between 3%-23% (in the British example above), which we can expect to have two following changes; a decrease in motivation to work (between 0%-100%, which in turn negatively changes the income tax collected), and a decrease in ability to buy new goods (which may change if the additional transfer payments are higher than the lost income). So we can expect that your behaviour will change as such:

Figure III. A theoretical model explaining the relationship between consumption and UBI’s effects on total wages as well as other sources of income from the government.

In plain English, you get the extra money from UBI, as well as existing benefits, as well as your wages (minus the hours of work you choose not to work due to lower effective wages) as well as the negative change in your consumption due to higher taxes and less hours worked.

Rossi and Lyall (1976) have crafted a Wage-Leisure Trade Off diagram (Below)

Source: Rossi and Lyall, 1976

In the above chart, we can see that adding the line g to E as a minimum wage level due to UBI means we can see an increase in the utility level from curve 1 to curve 2, lending support to Rawls and utilitarian ideals, but it also makes all economic activity below that wage level stop (why work if you don’t need to?). It also increases the amount of leisure taken, as the new efficient trade-off moves from utility 1 to utility 2, at point G, having chosen less work.

For it to be an efficient measure on the individual level (in terms of consumption), we’d have to assume there is no inflation, and we’d have to prove that the gains in consumption from UBI would be greater than the loss in wages (which pay the taxes for UBI) due to people reducing their workload, as they have more money. Gibson et al., (2018) found that there was a massive decrease in work hours among secondary workers in 10 Universal Basic Income/Negative Income Tax based experiments. In short, we’d have to prove this:

UBI based utility ≥ Lost Economic Activity

Due to all of the behaviours changed, we can see it is clearly inefficient and behaviour changing. Assuming we pay the government at least 1 person in one room to do this (and in one experiment for Negative Income Tax, it was about 50% of the total cost; Rossi and Lyall, 1976), we find this:

Government Tax Revenue (x%) = Universal Basic Income Receipt (>x%)

Okun’s Leaky Bucket points out that all government plans are not efficient, and the best we can do is try to plug as many of the leaks as possible. But it cannot ever be as efficient as the market itself.

By logic, it is inefficient on a macro-level, and can decrease activity and production on an individual level. This is against the ideals of Smithian Liberalism and Libertarianism. It’s certainly against the idea of market efficiency. The demands upon the individual are certainly put against individual freedom and choice of allocation of their own resources.


We have covered Nozick and Smith; anyone who enjoys Conservative right-wing politics, libertarianism, or economics will doubtlessly recognise and understand the general point of these writers, and perhaps even agree with them. They provide an important counterpoint in public policy:

1) It is tempting to use the power of government to solve a hardship or a problem. The fact is that doing so will adversely affect the persons ability to help themselves, will do so at the cost (via taxes) of others in society, and is done with the implicit threat of violence.

2) That government policy is inefficient, and inelegant by its very nature. Policies written must be as careful as possible to address the exact problem, to do so with as few leaks as possible, and if it is possible to give it to the market, serious consideration to do so must be given.

3) That governments must balance liberty and solving problems; perspectives such as these advocate for liberty and against government expansion, which is always done at the cost of personal freedoms and taxpayer income.

If you’ve enjoyed reading this, please consider following me on Twitter @LeonDeclis or on Apple News on the Idea Meritocracy channel, or a Facebook page at @IdeaMeritocracyEcon. There is also an RSS feed option on this website for direct updates! Have a nice day!

If you’d like to read more about how libertarian monetary policy would work in the United Kingdom, read here!

If you’d like to read about how government intervention can ruin consumer behaviour, read here!

If you’d like an article about whether monarchies are actually sexist or racist, click here!


In all articles, I provide as much information for sources as possible, including links. I encourage everyone reading this article to read deeper, and make their own conclusions. For students, links are here so they can read the original source themselves. Most sources are linked the first or second time they appear in the article.

Bellinger, W., (2007), “The Economic Analysis of Public Policy”, published by Routledge Taylor and Francis, 1st Edition

Donahue, J., (2018), “Obesity in the US and UK”, published by the Journal of Nutrition and Food Sciences, Vol 8:4, retrieved from on 27th September 2019.

Dworkins, R., (1977), “Philosophy and Politics with Bryan Magee (1977)”, published on Philosophy and Politics with Bryan Magee, interviewed by Brian Magee, retrieved from on 15th September 2019.

Friedman, M., (1968), "Firing Line with William F. Buckley Jr.: The Economic Crisis”, published on Firing Line with William F. Buckley, retrieved from on 15th September 2019.

Gibson, M., Hearty, M., Craig, P., (2018), “Universal Basic Income: A scoping review of evidence of impacts and study characteristics”, published by What Works Scotland, Edinburgh, Scotland, United Kingdom, retrieved from http:// WhatWorksScotlandBasicIncomeScopingReview1210FINAL.pdf on 14th March 2019

Reed, H, and Lansley, S, (2016), “Universal Basic Income: An idea whose time has come?”, published by Compass, London, United Kingdom, retrieved from on 16th September 2019.

Rossi, P., Lyall, K., (1976), “Reforming Public Welfare: A Critique of the Negative Income Tax Experiment”, published by the Russell Sage Foundation, New York, U.S.

Thatcher, M., (1990), “HC S: [Confidence in Her Majesty's Government]”, published by Hansard HC, re-published by Margaret Thatcher Foundation, retrieved from on 14th September 2019.

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