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The Wealth of the People: The Wealth of the State
An Inquiry into the Relationship between
Wealth, Freedom, and Life
By
Fernando Urias
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SMASHWORDS EDITION
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PUBLISHED BY:
Fernando Urias on Smashwords
Copyright © 2012 by Fernando Urias
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Disclaimer
This book is designed to provide information and entertainment. It is published with
the understanding that the publisher and author are not engaged in rendering legal,
economic, accounting, political, financial, or any other type of professional service. If
legal or other expert assistance is required, the services of a competent professional
should be sought.
It is not the purpose of this book to reprint all the information that is otherwise
available to authors and publishers but instead to complement, amplify, and supplement
other texts. You are urged to read all the available material and learn as much as possible
about economics and human organizations and tailor the information to your individual

needs.
Every effort has been made to make this book as complete and as accurate as
possible. However, there may be mistakes, both typographical and in content. Therefore,
this text should be used only as a general guide and not as the ultimate source on
economic or social organizations. Furthermore, this manual contains information on
economics and social sciences that is current only up to the publishing date.
The purpose of this book is to educate and entertain. The author and publisher shall
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Table of Contents:
Introduction
The Non-Aggression Agreement
The Social Contract
The Rule of the State
The Citizen's Charter
Rule by Written Law
Democracy
No Taxation without Representation
Useful, Supervised, and Limited Government Spending
Separation of Powers
Low Taxation
Low Regulation
Limited Terms in Public Office
Trial by Jury
Common Law
A Constitution
A Bill of Rights
Limited Powers to Make War

Limitation to Enter the Market
A Referendum Process
An Initiative Process
The Mission of the State
Other Functions of the State
The Vision of the State
Final Notes on Book Five
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Introduction
This is the fifth book of the "Wealth of the People" series. The series is an inquiry
about the requirements for the production of wealth in a society. The fifth book is about
the function that the state performs to support the wealth production process. A state that
allows its citizens to produce wealth is a valuable asset to its citizens. This asset can
thought as a factor of production that can be called social capital. The assumption that the
people will respect life and property is removed in this book and the formation of the
state is discussed as a result of demonstrated human behavior. This book assumes that
you have read the first four books. If you have not read them, please go to
Smashwords.com and read them in order. The complete list of the "Wealth of the People"
titles can be found at the end of this book.
The Non-Aggression Agreement
If you would meet a neighbor in a desert island, you should know that it is better
to make and act according to a non-aggression agreement than to fight with each other.
You would expect that this agreement would imply the respect for each other's property
of because if the property is not respected, a fight could result that would risk your lives.
You would want a non-aggression agreement for the following reasons:
First, you would want to keep the fruits of your labor. It would be frustrating and
upsetting that the product from your work was taken away by your neighbor. If this
would happen, you would want to stop your production activities until you could assure
that this would not happen again.
Second, you would want to keep the tools of your wealth production process. To

produce in a more efficient way, you would have developed tools to increase your
productivity. If the tools were stolen by your neighbor, you would lose your investment,
you would drop to a less efficient wealth production process, and you would be reluctant
to invest again.
Third, you would want to trade with your neighbor and get the advantages of
trade in a market. You would like to enjoy through trade, the efficiencies that would
result from your neighbor's investments and at the same time pass to him the efficiencies
of your investments.
Fourth, you would like to exchange or copy ideas about the best methods for
several wealth production processes. Without the non-aggression agreement, you would
have to discover everything on your own and you would not gain the advantage of the
transfer of human capital that can occur between two or more people.
If you and your neighbor would share the principle of respect for life and
property, you could become wealthy together by working hard, investing in better wealth
production processes, trading with each other, and sharing or copying each other's wealth
production methods. If you and your neighbor act according to the principle of respecting
life and property you would not need an expensive state to protect your life and property.
Keeping a non-aggression agreement would be the lowest cost solution for your
relationship with your neighbor and it would allow you to work to become wealthy and
freer in the fastest way possible. The agreement would be a capital asset that would allow
you to work and for this reason, it can be thought as being part of your social capital.
The Non-Aggression Agreement Principle of Wealth Production
If two or more individuals act according to a non-aggression agreement, respecting each
other's life and property, they can become wealthy together with their work, investments,
trade, and human capital transfer.
The Social Contract
Social contract was the term used by John Locke to name the contract that a
group of people could make to live in peace. The non-aggression agreement would be the
start of such contract but to have a contract, the agreement has to be conscious and
voluntary. This is hard to do in a large geographical area with the large population that

constitutes a city or a nation. The formation of the state has been born many times with
this idea but unfortunately, the members of society that end up with the power, find it to
their advantage to use the power for their own advantage. Most of states in early history
and many today were and are very far from looking like a social contract.

The Consequences of Not Having a Social Contract
What would you to do if your neighbor, instead of working and trading with you,
prefers the instant gratification of stealing your property? How could you convince your
neighbor that it is more advantageous for both of you to respect each other’s life and
property? How could you teach your neighbor that the absence of a non-aggression
agreement will result in the loss of the capability to produce at a higher standard of
living?
Look at the problem as if you were in the other side. What would you do if your
neighbor was wealthy and you were not? Would you respect your neighbor's life and
property and work to improve your situation or would you find reasons to justify the
taxing or confiscation of your neighbor's property? Would you be willing to work and
trade with your neighbor or would you be resentful and harvest the desire to redistribute
the existing wealth?
The problem can be posed in a more difficult way when you consider the
availability of weapons. Imagine that after a few years of living in the island, you and
your neighbor have built some tools and are trading peacefully and one day, walking
alone in the beach, you find a wooden chest from a shipwreck. You open the chest and
inside you find two muskets, ammunition and powder in good condition. What would
you do with this treasure? The muskets can be used as tools of hunting or they can be
used as weapons. They would be very valuable for you or your neighbor. Would you
keep the muskets to yourself and use them for hunting? Would you use them as weapons
to take advantage of your neighbor? Would you sell one to your neighbor and hunt
together? Would you be able to sleep at night thinking that your neighbor might want to
take them away from you? Would you announce to your neighbor that you no longer
have a non-aggression agreement and that whatever you say is the law because you have

the muskets?
What would you do if you were the one without a weapon? Imagine that you had
just arrived to the island and you meet Robinson Crusoe. At the time that you meet him,
he has been living in the island for several years and he has a shelter, domesticated goats,
and plenty of food. He welcomes you, gives you food and shelter and tells you that you
have to work for him to pay for the food and shelter. You agree. After a few weeks of this
arrangement, in which you are able to start building your own shelter, you realize that he
has several muskets, ammunition, and the powder that he recovered from the shipwreck.
You offer to buy one but he refuses to sell you one. Would you feel that you are being
treated unfairly? Would you think about taking one by force even if it would mean to
break your relationship?
The wealth production process advances with investments in physical capital
assets that are necessary for the production of wealth. These physical assets and their
technology can be used for protection and self-defense. The spear, the bow and arrows,
and the muskets are tools of hunting that can also be used for self-defense. Due to many
people not understanding the principle of respect of life and property, these physical
assets have to be used as weapons to protect the life and property of the people that are
working. The person or group of people that has the most powerful weapons can
dominate the rest of the people. This happened when there were no metals and bronze
was discovered. It happened again when iron was discovered and it proved superior to
bronze. It happened again with the discovery of powder, and it is true today with the
existence of nuclear weapons.
The Weapon Principle of Wealth Production
The wealth production process requires the protection of the life and property of
the people that are working with weapons. This protection is needed because some
people have not learned the principle of respect for life and property. The weapons are a
factor of production because they are necessary for the wealth production process.
The Rule of the State
The availability of weapons developed with the same technology from the wealth
production process is necessary but not sufficient to protect it. Any individual, small

group or business enterprise is vulnerable to an attack or extortion from another
individual or group of individuals using the same weapons. An individual or small group
needs the protection from a large group that will guarantee protection against attack from
any other individual or group. This large group historically has been formed by force and
can provide protection over a large geographical area. The large group obtains the
monopoly in weapons and adopts the responsibility for protection but it also has the
power to attack, exploit, and abuse.
About fifteen thousand years ago, the first agricultural villages were formed. In
these villages and later in Sumerian and Egypt, governments were formed that were
based on force and weapons. The formation of Egypt seven thousand years ago is an
illustration of the growth of the large group. Egypt prospered into one of the first human
civilizations because the valley of the Nile was protected by the desert. Nader, becoming
the ruler of one of the richest areas, unified Egypt by forming a large group in what
would become the Egyptian empire.
From a state of war or lawlessness, the establishment of protection by a large
group is an improvement in social capital. The state is a centralized government that
maintains a monopoly of the use of force over a defined geographical area or territory.
The establishment of a central government, even if autocratic, is an increase in social
capital over a state of lawlessness where business cannot be conducted because any
person can be a victim of crime.
The State Principle of Wealth Production
A large group of people will dominate a geographical area by force and become
the state or government of the area. Individuals, business enterprises, and the market
need the protection of this large group to be able to operate the wealth production
process.
The Citizen's Charter
A charter is a grant of authority or rights where the granter recognizes the
prerogative of the recipient to exercise certain rights specified in the charter but the
granter retains superiority. The Magna Carta written in 1215 to recognize the rights of the
nobles in England and presented to the King to sign became a Royal Charter. When you

are born, you get an implicit citizen's charter that the state grants you with a specific set
of rights and obligations. The citizen's charter is not voluntary. It is enforced by the state.
It consists of the current level of social capital in your nation. Your citizen charter at the
moment of your birth gives you an inheritance of social capital gains that your ancestors
have been able to achieve through many generations. You have to live and work meeting
the laws and ways of operating of your nation. You can dedicate part of your life to
improve your citizen's charter but you cannot refuse it. If you do not act according to the
charter, you could end up in prison.
The questions that you have to ask yourself when you come of age are: How fair
is the citizen's charter of the nation where I was born? How can I improve myself and my
family within the bounds of my citizen's charter? What can I do to improve the citizen's
charter in my country? Does my citizen's charter have enough social capital to allow me
to be free and wealthy? Who should I vote for in the next election to improve my citizen's
charter and increase the social capital of my nation?
The citizen's charter is granted by the group of people that has the power to
protect a geographic area, the people that live in it, and their assets. It is very difficult for
the people in power to relinquish this power and improve the citizen's charter unilaterally.
Most of the improvements of the citizen's charter have come from citizens that in have
risked their lives in the effort to seek improvements.
The state has the responsibility to protect the people and their assets but it also has
the power to confiscate and abuse. Social capital is increased by limiting the power and
attributes of the state through law and democracy. This is a process that has been going
on through history very slowly, at a great cost, and at the expense of many lives. After the
establishment of a central government that has usually been abusive, people fight for their
freedom and their right to be free and produce wealth. The development of the
governments of the world across history can be viewed as a gradual improvement of the
citizen's charter to convert it into a social contract. There are several agreements, like the
non-aggression agreement, that limit the power of the state, define its mission, and
convert the citizen's charter into a social contract.
Rule by Written Law

The first agreement to limit the power of the state is the request from the citizenry
that the laws be put in writing. It is one of the rights of the citizens to be ruled by law that
is written, understood by everybody, and not subject to the arbitrariness of the people
applying the law.
The first codification of the law was done by the Sumerians under Hammurabi
around 2000 B.C. This law extensively regulated family life. One of Hammurabi’s
greatest achievements was this effort to “make justice appear in the land”. He collected
the laws of the various Mesopotamian City-States and created a law code that would
cover the whole region. This is called the Hammurabi’s Law Code. The Code consists of
282 sections dealing with most aspects of daily life. This development of written law was
a major advance toward justice and order and also a major advance in social capital.
Sometime around 450 B.C., a group of judges posted 12 tablets in Rome's
marketplace. This was done because it was demanded by the common people of Rome.
The Romans believed that the people should be ruled by law and not by the whim of their
rulers. They wanted the laws written for all to see and for all the people to know their
rights. This code of law remained in effect for almost 1,000 years.
In A.D. 1215, a group of nobles in England, worried about their feudal rights, met
in Rummy Mede in England. They presented to King John the Magna Carta to be signed.
The Magna Carta placed clear limits on the royal power. With the Magna Carta, the King
was bound by law. The nobles intended the Magna Carta to protect their feudal rights but
over time, it guaranteed the rights of all English people.
In A.D. 1799, Napoleon Bonaparte took part in a commission to draw up a
uniform code of laws. This code reaffirmed the principle that the same laws should be
used to govern all people. This code was applied in France and in lands as far as Quebec
and some Latin American countries.
Having written law is a great improvement in social capital. The law is a code of
conduct and rights formally recognized by a society and enforced by the state. Law
provides social control, order, and justice. Many of the rules required to support the
wealth production process need to be written into law. The law is part of the social capital
of a nation and its content and practice determines how easy or hard it is to engage in

business enterprises that produce wealth.
Democracy
Democracy, the election of representatives for government by a vote of the
people, is one of the most effective methods to improve social capital by limiting and
defining the power of the state. Democracy was present in the Sumerian City-States and
the Egyptian Villages. It might have been present in previous human communities. In the
Sumerian City-States, it disappeared quickly when the citizens had to appoint military
leaders to defend the city. These leaders found themselves with absolute power. The
Sumerian kingships became hereditary and the principle of democracy was not
established as a culture.
The first stable democracy was the one created by the Greeks. The Greek City-
State was governed by the polis. The polis consisted of a city and the surrounding
villages. Citizens took part in government and gathered in the Agora, at the foot of the
temple of the local deity, to carry out public affairs. The citizens of a polis could vote,
hold public office, own property, and speak for themselves in court. The polis expected
the Greek citizens to serve in government and to defend the polis in time of war. The
citizens were only a minority of the population of a polis. Those who were foreign born,
slaves, those who did not own land and women were excluded from citizenship. Greek
communities became later ruled by Kings. By 700 B.C., the Kings had lost power to the
land holding aristocrats. By 650 B.C. disputes arose between the aristocrats and the
common people. Farmers, merchants and artisans that were excluded from citizenship
wanted a voice in the government. To keep their power, the Kings became tyrants. A
tyrant is a man that seizes power and rules single-handedly. Greek City-States later
became oligarchies, where a few wealthy citizens held the power of the City-State and
limited the power of their democracies.
Around 500 B.C. the Roman patricians, wealthy aristocrats that had success in
Rome, declared the city a republic. A republic is a community where the people elect
their leaders. The patricians established a government based in an executive and a
legislative branch. The plebeians, that included rich merchants that voted and paid taxes
but could not hold public office, went on strike in 494 B.C. demanding more participation

in the government. They got it through the recognition of the publicly elected tribunes.
The Roman expansion required military leaders that disputed among themselves and the
democracy was over in 45 B.C., when Caesar declared himself dictator for life.
Democracy disappeared all through the middle Ages and did not appear again
until England. In 1649, after a long struggle with the English Kings, the English
Parliament abolished the office of the monarch and declared England a commonwealth, a
state governed by elected representatives.
The American colonies started with democratic governments. Under the far rule
of King George, each colony had a Royal Governor appointed by the King but it also had
an elected assembly. Voting was restricted to men that owned property, as it was in
England but in the colonies it was much easier to acquire land. A much greater
percentage of the population, as compared to England, could vote for the government.
The assemblies kept the right to approve taxes requested by the governors.
Democracy was spread through Europe during Napoleon’s campaigns. Napoleon
helped spread the ideas and reforms of the French Revolution throughout Europe. In the
countries that Napoleon conquered, the French established constitutions and enforced the
principles of the Napoleonic Code. When Napoleon’s empire collapsed, many European
states wanted to keep the changes that were brought in by the French domination,
especially the abolition of the absolute monarchies.
Democracy is a way that the public can get their ideas and wishes implemented to
improve the citizen's charter. It is a great improvement over a one man rule. Nonetheless,
democracy does not guarantee that the citizen's charter will improve. The people of many
nations are prone to believe in politicians that offer a free lunch and they vote for
expansions of the state not realizing that the cost for the apparently free lunch is their
freedom and wealth producing capability.
No Taxation without Representation
From the formation of the first agricultural villages 15,000 years ago, the first
governments found it very hard not to abuse their power to tax and live at the expense of
society by imposing excessive taxation that has been many times the cause of revolts.
With the growth of the villages into cities and the cities into nations, the need for

defense was in the hands of military rulers that sustained their organizations with
taxation. Unfortunately, since their power was unbounded, the power of taxation has been
abused many times. For example, Ancient Egypt was home to about 5 million persons.
The majority of them belonged to the poor lower class. Many were farmers and for the
land that they farmed, they paid rent to the King, usually a large percentage of their crop.
In the manorial system during Feudalism, the wealth of a feudal lord came from
the labor of the peasants who lived in and worked the lord’s land. Manors, or states,
varied in size. In return for the Lord’s protection, the peasants provided various services
to the Lord. Chief among the obligations were to farm the lord’s land and to make
various payments of goods. In addition, peasants were obligated to set aside a number of
days each year to provide various types of labor, such as road and bridge repair.
The Magna Carta prohibited the King from raising taxes without the consent of
the Great Council and in 1625, the Parliament in England forced King Charles to sign the
Petition of Rights that forbid the King from raising taxes without the Parliament's
consent.
No taxation without representation was one of the tenets for the American
Revolution that started in 1775. The King of England imposed taxes on the American
colonies that had no representation in the British Parliament.
If the people are going to pay taxes to sustain a state, they have the right to be
represented in the decisions regarding the amount of the taxes and their use.
Useful, Supervised, and Limited Government Spending
Taxes shift the use of the resources from the people that earned them in the wealth
production process to the use of the government. It is of great impact to society what the
government does with these resources. Government spending can range from useful
physical capital projects, such as roads and bridges to wasteful and lavish spending of
government officials.
Taxation is mandatory by the state but it is to be used for the proper maintenance
of the government. The state will try to grow as much as possible and the people need to
limit government spending and supervise the spending to make sure that it is used in the
proper activities. The state budget and expenditures should be available for the people to

review.
Early Egyptian civilizations spent a great deal of the taxes collected in irrigation
systems that created a surplus of food. Around 2050 B.C. the Kings in Egypt supported
irrigation projects that added thousands of acres to the land already under cultivation.
The taxes are well used when they are spent to run a government that increases
and protects everybody’s freedom and prosperity. The misuse of funds by the
government is when the government officials abuse their power to use the resources at
their disposal to be wasted in luxurious consumption, war, or corruption. The nation
suffers because hard earned money that could have gone to investments goes to
government consumption. The resources are dissipated instead of going to physical
capital investments, public or private, and the nation does not advance in its wealth
producing capabilities.
The government does not have the market competition of cost and profit
governing the right or wrong of its spending. The citizens of a nation need to have a way
to control government spending to make sure it is used for purposes that benefit society
and supervise that the government services are acceptable.
Through democracy, the people need to be able to limit and supervise government
spending and debt. A government can get heavily into debt if it does not have limitations
to spending and debt imposed by the people.
Separation of Powers
In 594 B.C. Solon in Greece set up two legislative houses where the Aristocrats
belonged to the Council of 400 and landowning commoners made up the Assembly. The
Council drafted measures that went to the Assembly for approval. Any citizen could
belong to the Assembly, in which they were considered equal before the law and
guaranteed freedom of speech.
In 1066, William the Conqueror took over England. He set up a Great Council of
royal officials, bishops, and nobles to advise him. This would be the base for a legislative
chamber that would later become representative of the people. During Henry III, a new
social class, the middle class, emerged. Its income came from business and trade, not
from the land. Recognizing their increasing power, Henry III added them to the Great

Council. The name of the Great Council was later changed to Parliament. By 1400,
Parliament had divided into two chambers. Nobles and clergy met as the House of Lords
while Knights and Bourgeoisie met as the House of Commons. In 1642, Parliament sent
to King Charles “Nineteen Propositions” that made Parliament the supreme power in
England. King Charles refused the propositions and the English War resulted from these
differences. The war would conclude 4 years later in 1646, where the Parliament gained
complete control of the English government.
The American Constitution followed the idea that the central political authority
was to be divided among the executive, the legislative and the judicial branches of the
government. It also established a republic with an elected head of stated, a federal system
with power divided between a central government and regional governments.
By observing the English system, Montesquieu admired and wrote about the
separation of power that was occurring in England and contributed to the establishment
of this separation of powers in France and the rest of the world.
Low Taxation
Fleeing the oppression of their government, a group of Englishmen settled in
North America in 1776. They worked the land and formed markets with a minimum of
government taxation. They were not encumbered by a heavy government that required
heavy maintenance with oppressive taxes. In the thirteen colonies that they founded, they
formed city governments that were democratic and representative although they did not
have women's vote and they permitted the slavery of the black people. The representative
governments of the thirteen colonies kept taxes low bringing unprecedented growth in
their economies. The colonies also benefited from the industrial revolution that would
increase productivity dramatically. The rapid growth of wealth that occurred in North
America was due to low taxes, a fast increase of physical capital, and an unprecedented
high percentage of the people engaged in useful work. This was an environment of high
social capital given by low taxation, low government spending, and low regulation.
High taxes have been the cause of many civil wars. Governments will try to tax as
much as they can. The high taxation that the state imposes on its citizens drains resources
that could be used for the wealth production process. The people need a way to limit the

taxes that the government will impose. Historically this has been done through
representation in a lower house in congress.
High taxes transfer the lowest need of the taxed people, which is their
investments, to government spending. Some of the government spending will be spent in
physical capital projects such as highways and dams, but most of it will go to
consumption of the government employees for services rendered.
High taxation is one the greatest impediments to the growth of a nation. A high
taxation correlates to a high percentage of people that are not working in the wealth
production process. High taxation means that a high amount of the resources are not
going to wealth production process and its investments. The expense of the government
has to be watched over and maintained at the lowest level possible.
Wealthier nations will have a higher percentage of its people engaged in
productive enterprise instead of living out of the budget of the government. Whether the
government is a monarchy, a fascist dictatorship, a communist dictatorship, a populist
dictatorship, a republic or a democracy, excessive taxes placed on the people are the
greatest violation of property rights and the greatest impediment to the growth of the
wealth production capability of the nation and should be, for this reason, controlled by
the people.
Low Regulation
In order to tax and to justify its existence, a government will try to regulate as
much as possible. Regulation can come together with taxation because regulation can be
an excuse to impose taxes. Regulation can also come without taxation as a way to justify
the jobs of the state. Some regulation is needed for the life in society but many
regulations can hinder the wealth production process.
Limited Terms in Public Office
A democracy requires frequent elections so that the ruling people do not
consolidate their power and deny the right of the people to change the leadership. This
has also been the cause of rebellion. The Mexican revolution in 1910 started under the
banner of "Effective Vote, No Reelection" after President Porfirio Diaz retained the
presidency for thirty years.

Trial by Jury
The Athenian government included a jury system to decide court cases. Juries
consisted from 201 to 1,001 members, with a majority vote needed to reach a verdict.
The jury system was not perfected until England established it with the Magna
Carta in 1215. In the trial by Jury, a group of peers decides on the fate of a given case,
giving the power of decision to the people of the jury and taking it away from the judge
designated by the state. The jury is bound by the laws of the state and the job of the judge
is to preside over the process to make sure that the law is followed but the decision of the
case belongs to the jury. The process is very effective to eliminate the corruption to
which a judge is subject from either side of a case when he alone has to make the
decision. The corruption of a jury is much more difficult to accomplish.
The trial by jury represents a wider separation of the judicial power from the
executive power than the Roman Justinian or Napoleonic method of a judge that can be
influenced by the executive branch of the state.
Common Law
The court system developed under Henry II, King of England, around 1136 A.D.,
established a common law system throughout the English kingdom. In each community,
judges began to meet with a grand jury. A system of trial by jury was developed to
establish the guilt or the innocence of the accused. The common law and trial by jury
system of legal justice, evolved in England and it was quite different than the Roman
Justinian or Napoleonic Code. The power to decide was passed to the people with the
invention of the common law system. The combination of common law with a jury
system was not the prevailing law of the European continent. The common law system is
strongly based on the law of precedent. It is relevant to any case what has been decided
by other judges or juries throughout the land. This system transfers a great amount of
power from the government to the juries across the land. This system puts the writing of
the law in the hands of the people in a way that the most democratic legislature cannot
accomplish.
A good system of common law includes a self-escalation and a self-correction
process by which a jury or judge that judges incorrectly, will be measured by judges and

juries of a higher level in an appeal process that will review the decisions and make
amends if necessary. In doing so, both the original case and the appeals become the law
of the land as they go through a discussion and decision process of what is just and what
is not just. This is a superior system of resolution that very few nations enjoy today.
Although peers are not experts in the law, they know what they want for the accused and
for themselves. On the other hand, as much as a judge wants to be lawful and impartial to
the case, he is a single person pressured to be swayed one way or another, usually with
corruption.
A Constitution
The way the government is going to operate is written in a constitution. The
people define the function and the limits of the government in a constitution.
The definitions of the systems of government came by force before democracy
and the writing of constitutions came with the desire to have written law. The constitution
defines how the government is going to be structured, how is it going to be run, how are
laws to be defined, who is going to make sure that the laws are complied with, and at the
same time, limit the powers of the government and define the rights of the people.
The restoration of Charles II as King of England gave England a constitutional
monarchy. This was a monarchy where the power of the King was limited by a
constitution. England’s Constitution was formed by putting together several documents
that were the law of the land that included the Magna Carta and the Petition of Rights.
The founders of the United States of America understood the need to limit the
power of the government. They wrote a constitution that balanced the powers of the
government among three branches: the executive, the legislative, and the judicial
branches. It also established a republic with an elected head of stated, a federal system
with power divided between a central government and regional governments. A Bill of
Rights was added later to protect personal liberties, such as the freedom of religion,
freedom of speech, and the right to trial.
A Bill of Rights
The recognition of individual rights such as the right to live and the right for free
expression need to be written in the constitution. These rights are considered natural

rights that although they have to be established democratically, they are understood to be
natural rights that not even a democracy can violate.
By 507 B.C., the constitution of Athens stated that all free men were citizens
regardless of what class they belonged to. In 594 B.C. Solon freed debtors from slavery
and extended citizenship to artisans and merchants who were not born Athenians.
The Petition of Rights signed in 1625 by King Charles of England included the
right not to be imprisoned without just cause. Troops were forbidden from being housed
in private homes without the consent of the owner and the King could not call martial law
unless the country was at war. In 1689, the British Parliament wrote the Bill of Rights.
The King could not raise taxes or maintain an army without the consent of the
Parliament. The King could not suspend laws. It guaranteed the right to a trial by jury. It
outlawed cruel and unusual punishment and it limited the bail that could be required to
stay out of prison. Later, in exchange for a change in the Exclusion Bill, the Whigs
accepted the bill of Habeas Corpus. A person would not be held in prison by the King or
anyone else without just cause or without a trial.
The American Constitution initially did not include a bill of rights. They were
added later as amendments. They include the rights of freedom of expression, the right to
bear arms, not having to house soldiers, freedom from unreasonable search, due process
of law, speedy trial, trial by jury, no unreasonable punishment, the right for rights not
specified, the right to vote for the President, freedom from slavery, equality under the
law, other voting rights not specified, the right to transport and possess alcoholic
beverages, and the right for women to vote.
Limited Powers to Make War
Around 2050 B.C., a new dynasty reunited Egypt and moved the capital to
Thebes. The Theban Kings seized new territory, adding fortresses along the Nile to
capture Nebia (Sudan) and Syria. Given the origin of government to be the rule of force,
the history of mankind has many instances of governments using the nation resources for
aggressive war activities.
This happened in Egypt in the time when the Pharaoh invaded Syria, with the
conquests of Alexander the Great, in the expansion of the Roman Empire, with Napoleon

campaigns, with Germany in two World Wars, and in many other wars. The power of
national defense is to be used for defense for the people and their markets. The resources
of the state for national defense are to be used to protect the social, physical, and human
capital of the nation and never for attack or conquest.
A war of conquest is not justifiable for the same principle that you should not
attack your neighbor. As much as there might be reasons such as economic gain or
religion, a war of attack is a violation of the basic principle of respecting your neighbor.
A war of attack and conquest is a waste of lives and money because the people conquered
will fight hard for their freedom.
One of the justifications for a war in the past was to extract tribute. This tribute
might pay for the expense of the conquering nation but it will stifle the wealth production
capability of the conquered nation. The conquered nation will have to support two
governments, the local government and the tribute of the conquering nation. This high
burden makes a war of independence an economic necessity.
The power of a nation to attack other nations needs to be limited by the people but
without taking away the power of the executive to make quick and right decisions for
national defense.
An argument can be made that a conquering nation would bring the imposition of
a new and hopefully better way of operating the government. For example, the Roman
Empire, wherever it conquered, would impose Roman law, which in most cases, was
superior to the law of the conquered land. The same effect occurred with Napoleon and
his attempt to implement the Napoleonic code in the countries that he conquered during
his European campaigns. This progress of humanity is an advance but it gets stained with
the blood of all the people that die in the process that raises the question whether it was
worthwhile.
Limitation to Enter the Market
The function of the state is to protect the market, not to be a part of it. The
government should not enter business for the same reason that a baker should not make
shoes. It is not the reason for its existence.
It is a great temptation for the people in power to confiscate or participate in

wealth producing enterprises but this will invariably kill the industry. The market
function rests in business enterprises selling a product for a profit percentage over its
cost. This profit is limited by free competition. The government cannot be part of the
competition because it will have the resources from taxes and can subsidize any product
beating any legitimate businesses.
Another common occurrence in history is the tendency of the state to give
economic favors, usually to preferred groups that in some way or another pay back the
government officials that facilitate the favor. These economic favors could be in the form
of monopoly privileges, expensive contracts, subsidies, and outright bribes. These are all
market interferences for the benefit of selected businesses enterprises at the expense of
the people.
A Referendum Process
An advanced state would have a referendum process by which a significant
number of citizens can request that any law be submitted to a popular vote. One of the
most advanced referendum processes is the one in Switzerland. Swiss voters can demand
a binding referendum at federal, cantonal and municipal level. It is not the government's
choice whether or when a referendum is held. It is a legal procedure regulated by the
Swiss constitution. Any federal law, certain other federal resolutions, international
treaties that are ongoing in nature, or any change to Swiss law may be subject to a
referendum of 50,000 people. An obligatory referendum is required on any amendments
to the constitution. The possibility of referendums forces the Parliament to search for a
compromise between the major interest groups. In many cases, the mere threat of a
referendum is enough to make the Swiss Parliament adjust a law. The federal rule and
referendums have been used in Switzerland since 1848.
An Initiative Process
An advanced state would have a process by which a significant number of citizens
can initiate a law that would be submitted to a popular vote. An initiative is a process to
submit the petition to the government to put the law to a popular vote. The right to an
initiative has been in the Swiss Federal Constitution since 1891. The law binds the
government to submit to a vote any proposed constitutional amendment supported by

100,000 signatures within 18 months. A citizen-proposed change to the constitution in
Switzerland at the national level needs to achieve both a majority of the national popular
vote and a majority of the canton-wide vote in more than half of the cantons to pass. The
vast majority of national initiatives introduced since 1891, when the system started, have
failed to receive voter support but this is probably because the Parliament often
elaborates a counter-proposal leading to a multiple-choice referendum. Very few such
initiatives pass the vote, but more often, the parliamentary counter proposal is approved.
The Mission of the State
The mission of the state is to protect the life and property of its citizens. This
includes the protection of the wealth production process and its markets. To fulfill this
mission, the state has the power of the large group and the monopoly of weapons. The
temptation to use this power for personal gain by the people in power is too great and
makes it imperative that the role of the state be well defined, minimized, and performed
by people that are elected considering their capacity and will to serve with honesty.
The state is established by force and it is by the effort and blood of the people that
it gets transformed into an institution that protects the life and property of its citizens. The
state should lead the improvement of the citizen's charter to convert it into a social
contract as it would be written by the people.
The state taxes the wealth production process by force but in exchange it has to
provide the structure in which the people, the business enterprises, and the market can
operate and prosper. The level to which the government provides this structure is the
level of social capital of the nation.
The Protection of Life from a Foreign Invasion
The first objective of the state is to protect the life of its citizens from attack from
a foreign power. This is done with a system of national defense. The wealth production
process and its markets cannot work when a foreign nation takes over. The first states
were military organizations that were needed to protect the City-States, its boundaries,
and its trade routes.
The state, through a combination of weapons, the participation of its citizens, and
the knowledge of the principles of its neighbors, has to ensure that it has the ability to

discourage or repel any foreign power from invading. This can be done in several ways,
some small countries like Switzerland and Finland, train all its citizens as soldiers, other
like Japan rely on international agreements, others know that their neighbors intentions
do not include the desire or resources to conquer. The largest nations always have to rely
on their own power of self-defense.
It does not help to build up a great community with great social and physical
capital if another nation attacks and decides what is going to be done. A nation that wants
to preserve the wealth production capability of its citizens needs to have, as a necessary
expense, the national defense sufficient to defend against an outside invasion. A small
nation that wants to protect itself needs to train all its citizens as soldiers in order to show
a large nation that a overtaking of the nation would be extremely expensive.
The Protection of Life within the Nation
The protection of life within the nation is done through the establishment of
criminal law and a judicial system. With Hammurabi’s Code, crimes against people or
property became the concern of the whole community. This was a major advance in
social capital. An unpunished crime against people or property, be done by a burglar or a
government became a concern of the whole community. Every person attempting to the
life of another person should be put in jail. The government has to provide the last
resolution through the judicial system ideally using the jury system and common law to
specify what happens to any citizen that violates the law. The state has to enforce the
decision of the judicial system.
Prison Rehabilitation
The first necessity of the people and the state with a person that violates the
respect for life is to put him away to protect the life of the rest of the citizens. The
consideration for punishment should be secondary because the first consideration should
result in long prison terms. The range of a sentence should probably consider the time
that the person will take to learn the fault and convince a panel that the learning is
complete and the person will not commit the fault again. The consideration for deterrence
is probably also low since most criminals do not keep up with the news and the law. A
jury should be able to look at all the facts of the case and decide a length for a prison

sentence that would be long enough for the person to reflect on his fault and be freed
without being a threat to any other citizen.
The idea is to educate the person in living with the citizen's charter and this
education might require confinement. The best education is to operate worth the same
rules as the outside bit under confinement so a good rehabilitation program would where
the confined people are able to work and make income with the print wall s and at the
same time be forced to be educated to fill the gaps that might have caused the violation.
The Protection of Property
The protection of life brings the protection of property as an extension of the
protection of life. A person defending his property would put his life in danger.
The protection of property is a requirement for the wealth production process to
work. It means that a person that works will keep most of the results of their work. It also
means that there are rights of property over the tools that make the wealth production
more efficient. Without the protection of property, individuals, and business enterprises
are not able to invest and the wealth production process would operate with a low level of
physical capital resulting in a low income for its citizens.
The protection of property implies the protection of the markets. Without a
market where the people can trade, there is no place to pass the benefits of the
investments in the wealth production processes that all the people would be making
through the business enterprises.
The protection of property is a requirement for the state to allow their citizens to
become wealthy. The protection of property is an essential component of the social
capital that a nation needs to have for the wealth production process to exist.
Any person or business enterprise that causes damage to any other person should
be asked to pay for the damage. The emphasis of the property law should be to pay by
working in the market instead of going to jail. Jail should the final outcome if the person
does not comply. The interest of the people should be to have retribution for the damage
more than punishment. The idea is to protect the wealth production process and educate
all the people to abide to the citizen’s charter.
A state with high taxes is a violator of the principle of protecting the property of

its citizens. A state that is too expensive and spends the collected money in consumption
is taking resources from investment not allowing the nation to increase it income.
Individuals and business enterprises agree on many things but sometimes there
are disagreements. These disagreements can be arranged for arbitrage by private business
enterprises but the state has to provide the last and binding resolution. It falls to the
government to establish the system that specifies contract law, makes the last decision,
and enforces it.
The state is responsible to define legally the rights and obligations of the stock
company or corporation. The origin of the corporation goes back to the 1600’s in
Netherlands, when people that wanted to invest in exploration of the earth raised money
by combining their resources into what was called “joint-stock” companies. These
companies were legally defined as being owned by the owners of the stock but were
limited in their responsibility, in case of a loss, only to the money invested. This method
of financing is very effective to form large business enterprises.
An Independent Electoral System
The government has to fund and protect an electoral system for the fair carrying
of the elections. This includes the registration and protection of the political parties,
defining the voting age, protecting the right of all people to vote, the process of election,
the registration of the citizens, and the fair counting of the votes. The establishment of
democracy requires that there be an agency independent from the government that
oversees that the voting is fair.
The Coordination of Common Projects
The state is also responsible to coordinate and fund common projects that are
needed by the people, such as irrigation projects and road construction that are very
difficult to do in another way. The impact on the economy is very positive because
business becomes easier due to the improvements. The investments of physical capital
that are necessary, such as roads, most of the time have to be made by the government,
sometimes with the use of Eminent Domain, in which the property rights of a few persons
has to be considered for just compensation when yielding the property for advantage of