After three days of debate at a conference last week sponsored by the Institute for Humane Studies, I know something of how she felt. The institute is a libertarian thinktank based at George Mason University in Virginia, with a branch in Paris and a large enough budget to squander on lodging about 20 economists and one journalist at one of the most expensive hotels on the Cote d'Azur.

The subject of the colloquium was ostensibly ''Liberty and the taxation of income,'' but discussion quicky turned, as one suspects it does at all such gatherings, to whether the state has any right to exist. On this rather fundamental question there remains a schism between the hard-core anarcho-capitalists, who want to eliminate government altogether, and those moist types such as myself who merely want to constrain it.

Certainly it is worth remembering that all taxes, whether they are called income taxes or not, are a violation of property rights. If the state takes the fruit of my labor by force, it's just as if I had been forced to labor for the state. Most people would say that might be worth enduring, however, if there were no other way to pay for certain services.

Those who take the trouble to analyze what the state should do - as opposed to those who reflexively assume that if it needs to be done, the state should do it - call such activities ''public goods.'' There may be certain goods which everyone wants and would be willing to pay for, but which can be enjoyed even by those who don't pay.

MARKET FAILURE

Each of us would then try to ''free ride'' on the others, with the result that the service would not be provided - or at least, not in the desired amount. Taxes in that event only make everyone pay what they would willingly pay anyway in the absence of such market failure. Defence is one example. So, it may be argued, is income redistribution: we all want the poor to be looked after but would just as soon let someone else pay if we could.

To which the libertarian replies: how do we know what ''everyone wants?'' Unless there is unanimity, the social contract implied by public goods analysis is broken, and in the case of the dissenters we are back to a straight invasion of property rights. It's no good allowing conscientious objectors to opt out, because there is no way of telling the genuine article from the free riders.

There is also the question of whether government failure might be worse than market failure. That is, if we accept there are such things as public goods, how can we limit the state to their provision, without the various excretions of taxpayers' dollars on ''rent-seeking'' interest groups that characterize governments in the real world? One cannot simply assume, as economic theory did for too long, that the optimal policy and the actual policy will always coincide.

But you don't have to assume they never will, either, which is where I part company with the anarcho-capitalists. For those who deny the existence of a social contract, or despair of government ever keeping its side of the bargain, the issue becomes simple: limit government, by any means at hand. This can lead to some curious and contradictory policy recommendations.

For example, the optimal design of income tax would not be simple, neutral and non-intrusive, as orthodox theory would have it, but as complex, distortionary and irritating as possible, the better to foment popular resistance to the taxman. It would be filled with loopholes, allowing freedom-fighting accountants to snipe away at the state's revenues through tax avoidance. Or perhaps it would be better to avoid all tax preferences, to preserve the solidarity of the people against the state.

The liberal alternative to this sort of guerrilla warfare relies on the elaboration of a system of very simple, more or less permanent rules restraining government from going beyond its legitimate public goods role. This can be seen as the economic equivalent of the entrenchment of civil rights in a constitution. Or, if you like, it is to subject players in the political market to the same rule of law established by the price system in the market for goods and services.

What this economic constitution might look like, and how it could be enforced, is the subject of next week's column.