The Role of the State

One question has divided economists since the discipline’s inception: What is the proper role of economic policy? Laissez-faire advocates argue for minimal intervention, trusting markets to allocate resources efficiently. Interventionists argue that markets fail in predictable ways and that government action can improve outcomes. The debate has generated libraries of argument and counterargument, with neither side achieving definitive victory.

Constructed value theory offers a different framing—one that sidesteps the ideological poles and focuses on a variable both camps have neglected: friction.

Dissatisfaction as Economic Motivation

Begin with a simple observation: economic activity is driven by dissatisfaction.

Organisms transact because they are not at equilibrium. Hunger motivates food acquisition. Cold motivates shelter-seeking. Boredom motivates novelty-seeking. Anxiety about the future motivates saving and investment. If organisms were perfectly satisfied, perpetually at homeostasis, they would have no reason to act at all.

This is not a moral judgment. Dissatisfaction is not bad; it is the engine of action. The Buddhist concept of dukkha—often translated as suffering, but more accurately as unsatisfactoriness or unease—captures something fundamental about the condition of sentient organisms. We are perpetually displaced from equilibrium, and our actions are attempts to return.

Economic behavior is one expression of this more general pattern. We transact to resolve deficits, to acquire what we lack, to position ourselves for anticipated futures. The content of our dissatisfaction varies (food, status, security, novelty, meaning), but the structure is constant: deviation from equilibrium creates pressure toward action.

Crucially, most economic action is anticipatory, not reactive. The organism is not merely responding to current deficits but positioning itself for predicted future deficits. The grocery run happens before hunger becomes acute. The insurance payment happens before catastrophe strikes. The savings transfer happens before retirement arrives. Allostasis—anticipatory regulation—drives more economic behavior than homeostasis proper.

Quality of Life as Homeostatic Control

With this framing, we can reconceptualize quality of life.

Traditional measures of well-being focus on states: income, wealth, consumption, reported happiness. These are snapshots—momentary readings of where an organism finds itself.

Constructed value theory suggests a different metric: control. Quality of life is not about being at equilibrium (that would be death or torpor) but about having the capacity to return to equilibrium when displaced.

A wealthy person who cannot spend their wealth has low quality of life by this measure. A poor person who can readily meet their needs has higher quality of life than their income would suggest. What matters is not the position but the dynamics—not where you are but whether you can get where you need to go.

This is homeostatic control: the organism’s capacity to regulate its internal state through action on its environment. Economic systems either enhance or impede this capacity. A well-functioning economy is one where organisms can effectively transact to resolve their deviations from equilibrium. A dysfunctional economy is one where friction prevents this resolution.

Friction as the Mechanism of Suffering

Here we connect to the central variable of constructed value theory.

If quality of life is homeostatic control, and if transactions are the means by which organisms exercise control, then friction is the mechanism by which suffering persists. Friction is what stands between the organism and its resolution.

Consider the person who cannot access banking. They experience dissatisfaction (need for financial services, desire to save, requirement to receive payment), but friction prevents resolution. They see the scaffold but cannot use it. Their suffering is not that they lack money per se; it is that friction blocks the transactions that would address their situation.

Consider the person trapped in a dysfunctional market. They have resources to offer and needs to meet, but the market—riddled with information asymmetries, regulatory barriers, transaction costs—prevents efficient exchange. Potential value construction goes unrealized. The friction is the suffering.

Consider the person in a country with capital controls. They want to move resources, to invest abroad, to protect savings from inflation, but regulatory friction blocks their path. Their suffering is precisely the gap between what they could do and what friction allows.

This reframing has consequences for how we think about poverty. Poverty is not merely lack of resources. It is chronic friction—the accumulated barriers that prevent organisms from resolving their equilibrium deviations. The poor face higher transaction costs, less access to financial scaffolds, more regulatory burden, greater cognitive load from navigating complex systems. This chronic friction degrades their capacity for homeostatic control, creating allostatic load—the wear and tear of perpetual adjustment under adverse conditions.

The Goal of Policy: Enable Value Construction

With this framing, the role of the state becomes clearer.

The goal of economic policy, from the constructed value perspective, is not to provide value (government cannot create value; only transactions construct it) but to enable value construction by calibrating friction.

This means:

Reducing friction where it impedes beneficial value construction. When organisms cannot transact due to excessive barriers—bureaucratic, regulatory, infrastructural—policy should remove those barriers. Financial inclusion, simplified regulations, efficient payment systems, accessible markets: these reduce friction and enable organisms to resolve their equilibrium deviations.

Maintaining friction where it provides necessary protection. Not all friction is bad. Fraud prevention creates friction for fraudsters. Disclosure requirements create friction for misleading actors. Settlement delays create friction that prevents reckless speed. The question is not “eliminate all friction” but “what friction serves what purpose?”

Never pretending that frictionless is the goal. A world without friction would not be utopia; it would be chaos. Some friction is essential for stability, deliberation, security. The goal is optimal friction, not minimal friction.

This is a more nuanced position than either laissez-faire or interventionism. It acknowledges that markets need infrastructure, rules, and enforcement (the interventionist insight) while recognizing that government action often adds unproductive friction (the laissez-faire insight). The question is always empirical: Does this intervention reduce friction for beneficial activity or add friction that impedes it?

The Scaffold Must Be Accessible

One implication is immediate: the economic scaffold must be accessible.

If value is constructed through transactions on scaffolds, and if organisms cannot access the scaffold, then value construction is blocked. Financial exclusion is not merely inconvenience; it is suffering—the inability to exercise homeostatic control through economic action.

Bitcoin’s permissionless architecture is significant in this light. By removing gatekeepers, it reduces access friction to near zero. Anyone with internet connectivity can participate. No bank approval required. No credit history checked. No government permission sought.

This does not mean Bitcoin solves all problems of inclusion. On-ramps and off-ramps still involve friction. User experience still presents cognitive barriers. Volatility still creates risks. But at the protocol level, the scaffold is open. The friction that remains is at the edges, not at the core.

A state committed to enabling value construction would ensure that basic economic scaffolds are accessible. This might mean supporting financial infrastructure, subsidizing access for underserved populations, or simply refraining from imposing barriers that exclude.

Clean Signals and Strong Scaffolds

The constructed value framework suggests two complementary priorities for economic infrastructure:

Clean signals mean that prices reflect the aggregate of value-constructing transactions without distortion. When central banks manipulate interest rates, when governments set price controls, when subsidies redirect flows—signals become noisy. Organisms receiving noisy signals make worse decisions, and value construction becomes less efficient.

This is not a dogmatic opposition to all intervention. Sometimes intervention corrects for existing distortions. Sometimes prices fail to reflect genuine costs or benefits. The point is that signal clarity matters. Organisms act on the information they perceive; if that information is systematically misleading, their actions will be systematically misaligned.

Strong scaffolds mean that the infrastructure for transacting is robust, low-cost, and universally available. Payment systems that settle reliably. Property registries that accurately reflect ownership. Contract enforcement that operates predictably. These are not frills; they are the substrate on which value construction occurs.

Bitcoin offers an unusually strong scaffold in certain dimensions. The ledger is immutable, globally verifiable, and resistant to manipulation. Settlement is final once confirmed. The rules are transparent and algorithmically enforced. These properties create a scaffold that organisms can rely upon.

The Source of Economic Growth

Traditional economics debates the sources of growth: capital accumulation, technological progress, human capital, institutions. Constructed value theory offers a simpler framing: growth is value construction, and value construction depends on friction.

Economic growth occurs when more value is constructed. More value is constructed when more transactions occur and when those transactions produce larger gains. More transactions occur when friction is reduced. Larger gains occur when organisms can transact for what they actually need rather than for approximations imposed by friction.

This suggests that the deepest source of growth is friction reduction. When container shipping reduced the friction of moving goods, trade expanded and value construction exploded. When the internet reduced the friction of information exchange, new forms of coordination became possible. When mobile banking reduced the friction of financial access, previously excluded populations could participate in the formal economy.

Bitcoin is an experiment in friction reduction for certain kinds of transactions: cross-border remittances, censorship-resistant saving, programmable payments. If the experiment succeeds—if Bitcoin reduces friction for these use cases—value construction will increase in those domains.

The Role of the State: One Line

We can now state the role of the state in a single formulation:

The role of the state is to reduce friction where it impedes beneficial value construction and to maintain friction where it provides necessary protection.

This is not a complete theory of government. It says nothing about non-economic functions (defense, justice, culture). It does not specify which frictions are “beneficial” or which protections are “necessary”—these require judgment, debate, and democratic decision.

But as a orienting principle for economic policy, it offers clarity. Ask of any proposed intervention: Does this reduce friction for organisms trying to construct value? Or does it add friction that blocks them?

If the intervention reduces unproductive friction, it serves the goal. If it adds friction without compensating benefit, it impedes the goal. If it maintains friction that prevents exploitation or instability, it may serve the goal despite the immediate impediment.

This is not ideological neutrality—it has implications that will displease both extreme laissez-faire advocates (who deny any productive role for friction) and extreme interventionists (who add friction without concern for its costs). But it provides a framework for evaluation that transcends tribal affiliation.

The organisms are trying to get somewhere. Friction is what stands in their way. Policy should help them get there, where “getting there” means constructing value through transactions that resolve their equilibrium deviations. Not more, not less.

--- title: "The Role of the State" --- One question has divided economists since the discipline's inception: What is the proper role of economic policy? Laissez-faire advocates argue for minimal intervention, trusting markets to allocate resources efficiently. Interventionists argue that markets fail in predictable ways and that government action can improve outcomes. The debate has generated libraries of argument and counterargument, with neither side achieving definitive victory. Constructed value theory offers a different framing---one that sidesteps the ideological poles and focuses on a variable both camps have neglected: friction. ## Dissatisfaction as Economic Motivation Begin with a simple observation: economic activity is driven by dissatisfaction. Organisms transact because they are not at equilibrium. Hunger motivates food acquisition. Cold motivates shelter-seeking. Boredom motivates novelty-seeking. Anxiety about the future motivates saving and investment. If organisms were perfectly satisfied, perpetually at homeostasis, they would have no reason to act at all. This is not a moral judgment. Dissatisfaction is not bad; it is the engine of action. The Buddhist concept of *dukkha*---often translated as suffering, but more accurately as unsatisfactoriness or unease---captures something fundamental about the condition of sentient organisms. We are perpetually displaced from equilibrium, and our actions are attempts to return. Economic behavior is one expression of this more general pattern. We transact to resolve deficits, to acquire what we lack, to position ourselves for anticipated futures. The content of our dissatisfaction varies (food, status, security, novelty, meaning), but the structure is constant: deviation from equilibrium creates pressure toward action. Crucially, most economic action is *anticipatory*, not reactive. The organism is not merely responding to current deficits but positioning itself for predicted future deficits. The grocery run happens before hunger becomes acute. The insurance payment happens before catastrophe strikes. The savings transfer happens before retirement arrives. Allostasis---anticipatory regulation---drives more economic behavior than homeostasis proper. ## Quality of Life as Homeostatic Control With this framing, we can reconceptualize quality of life. Traditional measures of well-being focus on *states*: income, wealth, consumption, reported happiness. These are snapshots---momentary readings of where an organism finds itself. Constructed value theory suggests a different metric: *control*. Quality of life is not about being at equilibrium (that would be death or torpor) but about *having the capacity to return to equilibrium when displaced*. A wealthy person who cannot spend their wealth has low quality of life by this measure. A poor person who can readily meet their needs has higher quality of life than their income would suggest. What matters is not the position but the dynamics---not where you are but whether you can get where you need to go. This is homeostatic control: the organism's capacity to regulate its internal state through action on its environment. Economic systems either enhance or impede this capacity. A well-functioning economy is one where organisms can effectively transact to resolve their deviations from equilibrium. A dysfunctional economy is one where friction prevents this resolution. ## Friction as the Mechanism of Suffering Here we connect to the central variable of constructed value theory. If quality of life is homeostatic control, and if transactions are the means by which organisms exercise control, then friction is the mechanism by which suffering persists. Friction is what stands between the organism and its resolution. Consider the person who cannot access banking. They experience dissatisfaction (need for financial services, desire to save, requirement to receive payment), but friction prevents resolution. They see the scaffold but cannot use it. Their suffering is not that they lack money per se; it is that friction blocks the transactions that would address their situation. Consider the person trapped in a dysfunctional market. They have resources to offer and needs to meet, but the market---riddled with information asymmetries, regulatory barriers, transaction costs---prevents efficient exchange. Potential value construction goes unrealized. The friction is the suffering. Consider the person in a country with capital controls. They want to move resources, to invest abroad, to protect savings from inflation, but regulatory friction blocks their path. Their suffering is precisely the gap between what they could do and what friction allows. This reframing has consequences for how we think about poverty. Poverty is not merely lack of resources. It is chronic friction---the accumulated barriers that prevent organisms from resolving their equilibrium deviations. The poor face higher transaction costs, less access to financial scaffolds, more regulatory burden, greater cognitive load from navigating complex systems. This chronic friction degrades their capacity for homeostatic control, creating allostatic load---the wear and tear of perpetual adjustment under adverse conditions. ## The Goal of Policy: Enable Value Construction With this framing, the role of the state becomes clearer. The goal of economic policy, from the constructed value perspective, is not to provide value (government cannot create value; only transactions construct it) but to *enable* value construction by calibrating friction. This means: **Reducing friction where it impedes beneficial value construction.** When organisms cannot transact due to excessive barriers---bureaucratic, regulatory, infrastructural---policy should remove those barriers. Financial inclusion, simplified regulations, efficient payment systems, accessible markets: these reduce friction and enable organisms to resolve their equilibrium deviations. **Maintaining friction where it provides necessary protection.** Not all friction is bad. Fraud prevention creates friction for fraudsters. Disclosure requirements create friction for misleading actors. Settlement delays create friction that prevents reckless speed. The question is not "eliminate all friction" but "what friction serves what purpose?" **Never pretending that frictionless is the goal.** A world without friction would not be utopia; it would be chaos. Some friction is essential for stability, deliberation, security. The goal is optimal friction, not minimal friction. This is a more nuanced position than either laissez-faire or interventionism. It acknowledges that markets need infrastructure, rules, and enforcement (the interventionist insight) while recognizing that government action often adds unproductive friction (the laissez-faire insight). The question is always empirical: Does this intervention reduce friction for beneficial activity or add friction that impedes it? ## The Scaffold Must Be Accessible One implication is immediate: the economic scaffold must be accessible. If value is constructed through transactions on scaffolds, and if organisms cannot access the scaffold, then value construction is blocked. Financial exclusion is not merely inconvenience; it is suffering---the inability to exercise homeostatic control through economic action. Bitcoin's permissionless architecture is significant in this light. By removing gatekeepers, it reduces access friction to near zero. Anyone with internet connectivity can participate. No bank approval required. No credit history checked. No government permission sought. This does not mean Bitcoin solves all problems of inclusion. On-ramps and off-ramps still involve friction. User experience still presents cognitive barriers. Volatility still creates risks. But at the protocol level, the scaffold is open. The friction that remains is at the edges, not at the core. A state committed to enabling value construction would ensure that basic economic scaffolds are accessible. This might mean supporting financial infrastructure, subsidizing access for underserved populations, or simply refraining from imposing barriers that exclude. ## Clean Signals and Strong Scaffolds The constructed value framework suggests two complementary priorities for economic infrastructure: **Clean signals** mean that prices reflect the aggregate of value-constructing transactions without distortion. When central banks manipulate interest rates, when governments set price controls, when subsidies redirect flows---signals become noisy. Organisms receiving noisy signals make worse decisions, and value construction becomes less efficient. This is not a dogmatic opposition to all intervention. Sometimes intervention corrects for existing distortions. Sometimes prices fail to reflect genuine costs or benefits. The point is that signal clarity matters. Organisms act on the information they perceive; if that information is systematically misleading, their actions will be systematically misaligned. **Strong scaffolds** mean that the infrastructure for transacting is robust, low-cost, and universally available. Payment systems that settle reliably. Property registries that accurately reflect ownership. Contract enforcement that operates predictably. These are not frills; they are the substrate on which value construction occurs. Bitcoin offers an unusually strong scaffold in certain dimensions. The ledger is immutable, globally verifiable, and resistant to manipulation. Settlement is final once confirmed. The rules are transparent and algorithmically enforced. These properties create a scaffold that organisms can rely upon. ## The Source of Economic Growth Traditional economics debates the sources of growth: capital accumulation, technological progress, human capital, institutions. Constructed value theory offers a simpler framing: growth is value construction, and value construction depends on friction. Economic growth occurs when more value is constructed. More value is constructed when more transactions occur and when those transactions produce larger gains. More transactions occur when friction is reduced. Larger gains occur when organisms can transact for what they actually need rather than for approximations imposed by friction. This suggests that the deepest source of growth is friction reduction. When container shipping reduced the friction of moving goods, trade expanded and value construction exploded. When the internet reduced the friction of information exchange, new forms of coordination became possible. When mobile banking reduced the friction of financial access, previously excluded populations could participate in the formal economy. Bitcoin is an experiment in friction reduction for certain kinds of transactions: cross-border remittances, censorship-resistant saving, programmable payments. If the experiment succeeds---if Bitcoin reduces friction for these use cases---value construction will increase in those domains. ## The Role of the State: One Line We can now state the role of the state in a single formulation: **The role of the state is to reduce friction where it impedes beneficial value construction and to maintain friction where it provides necessary protection.** This is not a complete theory of government. It says nothing about non-economic functions (defense, justice, culture). It does not specify which frictions are "beneficial" or which protections are "necessary"---these require judgment, debate, and democratic decision. But as a orienting principle for economic policy, it offers clarity. Ask of any proposed intervention: Does this reduce friction for organisms trying to construct value? Or does it add friction that blocks them? If the intervention reduces unproductive friction, it serves the goal. If it adds friction without compensating benefit, it impedes the goal. If it maintains friction that prevents exploitation or instability, it may serve the goal despite the immediate impediment. This is not ideological neutrality---it has implications that will displease both extreme laissez-faire advocates (who deny any productive role for friction) and extreme interventionists (who add friction without concern for its costs). But it provides a framework for evaluation that transcends tribal affiliation. The organisms are trying to get somewhere. Friction is what stands in their way. Policy should help them get there, where "getting there" means constructing value through transactions that resolve their equilibrium deviations. Not more, not less.