For the first one hundred years America remained essentially true to the principles of the Founding Fathers. Government remained largely confined to its legitimate functions (though there were certainly many exceptions). In the late nineteenth century the Federal government began to abandon the founding principles and expand its reach into an ever growing portion of the economy and the lives of citizens.
The growth of government has generally been a gradual process, with occasional bursts. The most significant growth began with the New Deal in the 1930’s. This growth can be measured multiple ways—government expenditures, the volume of laws and regulations, and the number of individuals employed by government. By each measure, government has grown by a significant amount.
The growth in government is not confined to the federal level. Indeed, since World War II state and local government has grown at a more rapid rate than the federal government.
Even in a free society, some growth in government—in terms of expenditures and employees—is to be expected. A growing economy and an increasing population would increase the need for legitimate government services. However, the size of government today far exceeds what would be projected based on numbers from the nation’s first one hundred and forty years.
During the first sixty years of America’s history, federal outlays totaled $1.09 billion. This compares to an estimated $2.724 trillion (or $7.463 billion per day) for 2008. The consequences of inflation make comparing the actual outlays rather meaningless. Using constant dollars (I will use 2000) provides for a more meaningful comparison by eliminating the effects of inflation.
In constant 2000 dollars, federal outlays were $24.222 billion during the nation’s first sixty years. By 2007 outlays had increased to an estimated $2.223 billion, or $6.117 billion per day. 
The ratio of government spending to gross domestic product (GDP) provides a measure that includes economic expansion. That is, this ratio allows us to measure the size of government in comparison to the overall economic activity for a given period. This provides us with an objective measure of the size of government in terms of spending.
From 1789 to 1849, federal expenditures averaged 2.5% of the GDP. During the latter half of the nineteenth century, this figure averaged 3.8%, primarily due to the Civil War. Until Roosevelt’s New Deal, federal spending remained below 10% of the GDP. With the New Deal government spending, as a ratio of GDP, began to rise. Federal spending continued to rise until the 1990’s, when it subsided slightly. In 2007, federal spending was approximately 18.4% of the GDP. As a percentage of GDP the federal government’s expenditures have grown more than sevenfold since America’s founding. 
As government has grown and assumed greater control over the economy and the lives of individuals, an increasing number of bureaucrats and other government agents are needed for enforcement purposes.
In 1962 2.84 million people were employed in the military. That number had decreased to 1.478 million in 2003, which accounts for the decrease in the number employed by the federal government. Subtracting those in the military, employment by the federal government increased from 2.42 million in 1962 to 2.732 million in 2003, an increase of 12.8%.
While the number of citizens per federal employee rose from 36 to 69.1, the corresponding number for state and local employees decreased from 1 employee per 27.6 citizens to 15.5. Both spending and the number employed by state and local governments have increased substantially since 1962. By both measures, the size of state and local government has nearly doubled during a forty-one year period. 
The primary cause for the expansion government employees is the growing areas of the economy and our lives that are regulated, and thus require enforcement on the federal, state, and local levels. In other words, as governments control over our lives and the economy has expanded, more individuals are required to issue permits, monitor activities, check forms, and in general, insure that the citizenry is staying in line and meeting the mandates of government.
Functions and Expenditures
The increase in federal spending is the result of the government expanding its powers beyond its legitimate functions. This spending takes two primary forms—payments to state and local governments, and payments to individuals. Payments to state and local governments are generally for infrastructure, such as roads and bridges.
From 1940 to 2007 the percentage of GDP sent to state and local governments has increased by more than three times. Payments to individual have increased even more dramatically, and now account for more than 60% of the federal government’s outlays.
Federal outlays to individuals are primarily for entitlement programs, such as Medicare and other health programs, Social Security, and income security. Those functions alone accounted for an estimated $1.585 trillion in 2007. 
The Volume of Regulations
In 1970 the Code of Federal Regulations contained 54,834 pages. In 1998 it contained 134,723 pages. Between 1996 and 1999 15,286 new regulations were enacted. There is absolutely no shortage of federal regulations, despite the proclamations of pundits and politicians to the contrary.
In addition to restricting the freedom of individuals through proscription and prescription, these regulations enact a staggering cost on individuals and the economy. The estimated cost of these regulations is more than $1 trillion per year. State and local regulations add another $340 billion in costs. In total, the cost of meeting these various regulations costs each person more than $4,600 per year, and the total grows every year as more regulations are enacted. 
The “Correct” Size of Government
While it is difficult to say with absolute precision what the “correct” size of government should be, it is quite easy to say that it should be substantially smaller. We can however, use historical numbers to give some indication of what federal government expenditures “should” be.
If we use the percent of GDP spent by the federal government in 1910, federal spending in 2007 would be approximately $325 billion, or a little more than 15% of the government’s actual spending for the year.
It is within this context that we can discuss government without taxation--the money required to operate a proper government is far less than that spent today.
 Federal Outlays were obtained from http://www.gpoaccess.gov/usbudget/fy08/sheets/hist01z1.xls Conversion factors (CF) were obtained from http://www.wvec.k12.in.us/EastTipp/8/invent/handouts/cv2000.pdf CF for 1789-1849 based on average for 1800-1849. CF for 1850-1900 is average.
 Data obtained from http://www.gpoaccess.gov/usbudget/fy08/sheets/hist01z3.xls
 Data obtained from http://www.gpoaccess.gov/usbudget/fy08/sheets/hist17z5.xls
 Data obtained from http://www.gpoaccess.gov/usbudget/fy08/sheets/hist12z1.xls and http://www.gpoaccess.gov/usbudget/fy08/sheets/hist11z1.xls
Updated on April 8, 2010 with links to all of the posts in this series:
Government Without Taxation: Introduction
Government Without Taxation: The Size of Government
Government Without Taxation: The Police and Military
Government Without Taxation: The Courts
Government Without Taxation: Other Revenue Sources
Government Without Taxation: Final Thoughts