The essential characteristic of the liberal theory of the state is the doctrine of jurisdiction. That is, the idea that there is such a thing as a limited area of power and authority for the state — a delimitation of its proper sphere, beyond which, it is improper for the state to trespass. This doctrine is essentially the sole preserve of liberals. Only liberals seriously think about it. Anarchists reject the state altogether. Socialists are simply not concerned about limits of state power. Modern socialist governments may introduce market based reforms. The motivating factor is that of economic efficiency and not appreciation of the importance of individual liberty and limited government.
The first principle of the liberal theory of the state is that the state is not superior to other institutions. That is not to say that the state is an inferior institution. However, the state will generally be inferior to other institutions in the respective fields of special competence of those other institutions. The state is inferior to the church for the purpose of defining moral values or the conduct of ecclesiastical government. The state is inferior to the Australian Cricket Board and the Australian Medical Association in relation to cricket and practice of medicine. This follows not merely on grounds of efficiency or expediency but also as a moral principle. The state is simply one social institution amongst many. Each has its proper sphere. The state has its proper sphere. It should not appropriate the spheres of other institutions. This might be described as a rule of internal management: a presumption that each institution is the appropriate authority for the management of those matters which pertain to it.
The second principle of the liberal theory of the state is that the state ought to respect the fault principle. This principle is affirmed in Chapter 29 of Magna Carta and may be resolved into a series of further propositions. The state ought not to punish or inflict any detriment upon any man except on the basis of his fault, strict liability being applicable in exceptional circumstances. See section See section 18.2. The state ought not to reward those who are blameworthy for their blameworthiness. The state ought not otherwise promote blameworthy conduct or attach disincentives to virtuous conduct in any way. If these principles were observed within the welfare sector, that sector would be structured very differently. Welfare would be restricted to the genuinely needy. The concept of "no-fault" divorce is also directly contradictory to this principle.
The third principle of the liberal theory of the state is the supremacy of law and adherence to established, proper procedures. See section See section 18.2.
The fourth principle of the liberal theory of the state is that the power of the state ought to be fragmented and distributed amongst many centres. This principle is founded on the observation expressed in Lord Acton's aphorism that "Power corrupts : absolute power corrupts absolutely". It is by minimising the concentration of power in any one centre and by setting up many alternative, counterbalancing centres of power, that the standard of "everything open and above board" is more nearly attained and opportunities for corruption are minimised. See further, See section 17.4.
The positive liberal theory of the state arises out of the problem of the preservation of liberty. Liberalism eschews the absolute state, affirming the superior value of individual liberty but it also recognises the dangers of anarchy in the context of a human race which is tainted with evil. The assertion that the human race is tainted with evil, is intended to convey the idea that there exist standards of virtue and perfection — and the human race as a whole falls short of these standards. The liberal philosophy is sceptical of every claim that humanity or human nature can be made to be virtuous. It is the very suspicion of evil, and the belief in the fallibility of those who claim to be both virtuous and all-knowing which directly drives liberalism to advocate the limitation and decentralisation of power. Lord Acton's aphorism bears repetition ("Power corrupts: absolute power corrupts absolutely"). Liberalism affirms moral values and opposes relativism. It does not succumb to the false dogma of moral neutrality.
It is pertinent at the conclusion of a discussion of the role of the state according to liberal theory, to compare the liberal theory with some current tendencies in state practice. Firstly, the current reform mindset focuses upon problems and provides sweeping solutions without regard to their wider ramifications. In this way, the fine adjustments which the common law has made between rights and duties have been overturned in vast blocks. The balance of order has been upset. For example, in the field of family law, attention was given to the traumas undergone by litigants in efforts to prove fault. "No-fault" divorce was introduced as a solution without consideration of the effect of such a measure upon the status of marriage and the rights of innocent parties. The liberal system by contrast, requires that adjustments to the system should be carefully thought out so as to be consistent with the underlying rationale of the system. Furthermore, because of the complexities and unforseen factors involved reforms should be introduced slowly and incrementally.
Secondly, the fault basis of law is being deeply eroded (as in the family law example). See section 18.2.
Thirdly, the state has arrogated to itself power to determine and control and even to extinguish the independence of other institutions. An example is the many regulations placed on the medical profession. Furthermore, it arrogates to itself the power to redetermine social mores (as in Anti Discrimination legislation).
Fourthly, the state frequently exempts itself from subjection to the law, confers favours, legislates in respect of particular persons (for their advantage or disadvantage), and denies due process to accused persons (as in the case of the disciplinary procedures of various Anti Discrimination Boards).
Fifthly, the state is abolishing the distribution of powers by undermining the system of checks and balances. The delegation of wide ranging legislative power to the executive, the grant of judicial power to politicised executive tribunals and the politicisation of the public service are examples.
The modern state greatly exceeds the liberal ideal of limited government. To a significant degree it has become the destroyer of liberty. See further section 26.
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