What Is a Limited Government?

What Is a Limited Government?

Let me explain what a limited government really means. It's a political system where the government's powers are strictly restricted by law, aiming to prevent any concentration of power and to protect your individual liberties. In such systems, the government operates with delegated and enumerated authorities, meaning there are fewer laws dictating what you or businesses can and cannot do. Many countries use a written constitution to clearly define these powers and their limits.

You should know that the opposite is an interventionist or authoritarian government. In practice, though, most countries, even those with high levels of freedom, have some degree of government control and intervention.

Understanding a Limited Government

You can trace the theory of limited government back to the Enlightenment philosophers of the 17th century, but the idea is even older. It's closely tied to free market principles and classical liberalism, though politicians and economists often disagree on the precise limitations government should have.

In its basic form, a limited government focuses mainly on protecting people and their property, levying just enough taxes to fund services like police or national defense. Under this view, the government wouldn't interfere with your beliefs or moral behavior.

Another way to look at it is that a limited government only exercises the specific powers assigned by its constitution. It's often characterized by a separation of powers and checks and balances. For instance, the U.S. government is limited to the powers explicitly named in the Constitution.

History of Limited Governments

The modern concept of limited government came from the classical liberal tradition in Europe, which emphasized individual rights over the monarchies and theocratic governments that ruled at the time.

Consider the Magna Carta from 1215—it's one of the earliest written examples of limited government. It restricted the English king's power by granting rights to the nobility, though it only covered a small part of what is now the United Kingdom.

Then there's the U.S. Constitution from 1787, which built on this by separating state and federal powers and dividing the federal government into legislative, judicial, and executive branches. This setup makes it hard for any one person or group to control everything.

The Bill of Rights, the first 10 amendments ratified in 1791, adds more limits by prohibiting certain government actions that infringe on rights.

Limited Governments and the Economy

When it comes to economic policy, limited governments aim for minimal intervention in trade or business. They're often linked to laissez-faire economics, as described in Adam Smith's 1776 book 'An Inquiry Into the Nature and Causes of the Wealth of Nations.' In the extreme, this means the government lets supply and demand run the economy without setting prices or influencing activity.

Supporters argue this fosters growth by reducing restrictions, a view later tied to the Austrian school of economics. They say government meddling distorts markets, leading to shortages or high prices.

Critics, however, believe government should intervene to support industries or reduce inequality, an idea associated with John Maynard Keynes, who saw government spending as a way to stimulate the economy.

Problems With Limited Governments

Many political thinkers agree government powers need constraints, but they disagree on how far those should go. Critics say government must address collective problems that markets can't solve alone.

Take environmental regulations—they penalize polluters, something individuals might not achieve through courts, especially if they're excluded from the system. The EPA handles this on behalf of the public.

Governments also protect key industries with subsidies or tariffs, even if it means higher prices, because supporting them strategically can be cheaper than the risks of not having them in crises like war or famine.

Limited Government vs. Small Government

Don't confuse limited government with small government. People often use the terms interchangeably, but a small government—with low taxes and few administrators—might lack resources to protect public interests.

Imagine a country where taxes are too low to pay competitive salaries to administrators; some might turn to corruption, creating a bigger burden than taxes. World Bank research shows that higher public-sector salaries, with the right policies, can reduce corruption.

Examples of Limited Governments

The Fraser Institute has ranked countries on economic freedom since 1996, looking at government size, legal systems, sound money, trade freedom, and regulations.

Hong Kong topped the 2024 Fraser Index, thanks to low taxes, trade freedom, and business-friendly regulations, though recent Chinese security laws have impacted it.

Honduras ranked second in government size, scoring high on subsidies and investments but low on its legal system.

New Zealand was fourth overall but 97th in government size, excelling in legal protections and trade but dragged down by spending and subsidies.

How Is Federalism Connected to the Idea of Limited Government?

Federalism delegates powers to local bodies, giving them their own legislatures, courts, and taxes. In some cases, they can even secede, which limits central government overreach.

How Does the Constitution Reflect the Principle of Limited Government?

The U.S. Constitution divides government into three branches with separate powers and constraints. They must collaborate for new laws, making overreach unlikely as no single entity can dominate.

Who Came Up With the Idea of Limited Government?

The concept dates to the Magna Carta but was developed by Enlightenment thinkers. John Locke said government needs consent of the governed, Montesquieu proposed separation of powers, and Adam Smith advocated non-intervention in commerce. These influenced the American and French Revolutions.

Which Countries Have the Highest Degree of Limited Government?

The 2024 Human Freedom Index ranks Switzerland highest, followed by New Zealand, Denmark, Luxembourg, Ireland, Finland, Sweden, Iceland, Australia, and Estonia.

The Bottom Line

Limited government means legal constraints on political authorities to protect individual rights. It's also key in economics, where too much intervention can disrupt markets.