Chapter 12—The Economics of Violent
Intervention in the Market (continued)
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Chapter 12—The Economics of
Violent Intervention in the Market
(continued)
B.
Subsidies and Transfer Payments
Let us delve a little further into the typology of government spending.
Transfer spending or subsidies distort the market by coercively
penalizing the efficient for the benefit of the inefficient. (And it
does so even if the firm or individual is efficient without a subsidy,
for its activities are then being encouraged beyond their most economic
point.) Subsidies prolong the life of inefficient firms and prevent the
flexibility of the market from fully satisfying consumer
wants. The greater the extent of government subsidy, the more
the market is prevented from working, the more resources are frozen in
inefficient ways, and the lower will be the standard of living of
everyone. Furthermore, the more government intervenes and subsidizes,
the more caste conflict will be created in society, for individuals and
groups will benefit only at one an other’s
expense. The more widespread the tax-and-subsidy process, the
more people will be induced to abandon production and join the army of
those who live coercively off production. Production and living
standards will be progressively lowered as energy is diverted from
production to politics and as government saddles a dwindling base of
production with a growing and more top-heavy burden of the
State-privileged. This process will be all the more accelerated because
those who succeed in any activity will invariably tend to be
those who are best at performing it. Those who particularly flourish on
the free market, therefore, will be those most adept at production and
at serving their fellow men; those who succeed in the political
struggle for subsidies, on the other hand, will be those most adept at
wielding coercion or at winning favors from wielders of coercion.
Generally, different people will be in the different categories of the
successful, in accordance with the universal specialization of skills.
Furthermore, for those who are skillful at both, the tax-and-subsidy
system will encourage and promote their predatory skills and penalize
their productive ones.
A common example of direct transfer subsidy is governmental poor
relief. State poor relief is clearly a subsidization
of poverty, for men are now automatically entitled to money
from the State because of their poverty. Hence, the marginal disutility
of income forgone from leisure diminishes, and idleness and poverty
tend to increase further, which in turn increases the amount of subsidy
that must be extracted from the taxpayers. Thus, a system of legally
subsidized poverty tends to call forth more of the very poverty that is
supposedly being alleviated. When, as is generally the case, the amount
of subsidy depends directly on the number of children possessed by the
pauper, there is a further incentive for the pauper to breed more
children than otherwise and thereby multiply the number of
paupers—and even more dependent
paupers—still further.
The sincerity of the
State’s desire to promote charity towards the poor may be
gauged by two perennial drives of government: to suppress
“charity rackets” and to drive individual
beggars off the streets because the “government makes plenty
of provision for them.”
The effect of both
measures is to cripple voluntary individual gifts of charity and to
force the public to route its giving into the channels approved by, and
tied in with, government officialdom.
Similarly, governmental unemployment relief, often
supposed to help in curing unemployment, has the precisely reverse
effect: it subsidizes and intensifies unemployment. We have seen that
unemployment arises when laborers or unions set a minimum wage above
what they could obtain on the unhampered market. Tax aid helps them to
keep this unrealistic minimum and hence prolongs the period of
unemployment and aggravates the problem.
C.
Resource-Using Activities
Let us now return to the resource-using activities of
government, where the State professes to be providing a
service of some sort to the public. Government
“service” may be either furnished free or sold at a
price to users. “Free” services are particularly
characteristic of government. Police and military protection,
firefighting, education, parks, some water supply come to mind
as examples. The first point to note, of course, is that these services
are not and cannot be truly free. A free good, as
we saw early in this book, would not be a good and hence not an object
of human action; it would simply exist in superabundance for all. If a
good does not exist aplenty for all, then the resource is scarce, and
supplying it costs society other goods forgone. Hence it
cannot be free. The resources needed to supply the free governmental
service are extracted from the rest of production. Payment is
made, however, not by users on the basis of their voluntary purchases,
but by a coerced levy on the taxpayers. A basic split is thus effected
between payment and receipt of service.
This split is inherent in all government operations.
Many grave consequences follow from the split and from the
“free” service as well. As in all cases where price
is below the free-market price, an enormous and excessive demand is
stimulated for the good, far beyond the supply of service available.
Consequently, there will always be
“shortages” of the free good, constant complaints
of insufficiency, overcrowding, etc. An illustration is the perpetual
complaints about police insufficiency, particularly in crime-ridden
districts, about teacher and school shortages in the public school
system, about traffic jams on government-owned streets and highways,
etc. In no area of the free market are there such chronic complaints
about shortages, insufficiencies, and low quality service. In all areas
of private enterprise, firms try to coax and persuade consumers to buy
more of their product. Where government owns and operates, on the other
hand, there are invariably calls on consumers for patience and
sacrifice, and problems of shortages and deficiencies continually
abound. It is doubtful if any private enterprise would ever do what the
New York City and other governments have done: exhort consumers to use less
water. It is also characteristic of government operation that when a
water shortage develops, it is the consumers and
not the government “enterprisers” who are blamed
for the shortage. The pressure is on consumers to sacrifice, and to use
less, while in private industry the (welcome) pressure is on
entrepreneurs to supply more.
The well-known inefficiencies of government operation are not
empirical accidents, resulting perhaps from the lack of a civil service
tradition. They are inherent in all government
enterprise, and the excessive demand fomented by free and other
underpriced services is just one of the many reasons for this condition.
Free supply not only subsidizes the users at the expense of
nonusing taxpayers; it also misallocates resources by failing
to supply the service where it is most needed. The same is true, to a
lesser extent, wherever the price is under the free-market price. On
the free market, consumers can dictate the pricing and thereby assure
the best allocation of productive resources to supply their wants. In a
government enterprise, this cannot be done. Let us take again the case
of the free service. Since there is no pricing, and therefore no
exclusion of submarginal uses, there is no way that the government,
even if it wanted to, could allocate its services to their
most important uses and to the most eager buyers. All buyers, all uses,
are artificially kept on the same plane. As a result, the most
important uses will be slighted. The government is faced with
insuperable allocation problems, which it cannot solve even
to its own satisfaction. Thus, the government will be
confronted with the problem: Should we build a road in place A or place
B? There is no rational way whatever by which it can make this
decision. It cannot aid the private consumers of the road in the best
way. It can decide only according to the whim of the ruling government
official, i.e., only if the government officials do
the “consuming,” and not the public.
If the government wishes
to do what is best for the public, it is faced with an
impossible task.
D.
The Fallacy of Government on a “Business Basis”
Government may either subsidize deliberately by giving a service away
free, or it may genuinely try to find the true market price,
i.e., to “operate on a business basis.” The latter
is often the cry raised by conservatives—that government
enterprise be placed on a business footing, that deficits be ended,
etc. Almost always this means raising the price. Is this a rational
solution, however? It is often stated that a single government
enterprise, operating within the sphere of a private market and buying
resources from it, can price its services and allocate its
resources efficiently. This, however, is incorrect. There is
a fatal flaw that permeates every conceivable scheme of
government enterprise and ineluctably prevents it from rational pricing
and efficient allocation of resources. Because of this flaw,
government enterprise can never be operated on a
“business” basis, no matter how ardent a
government’s intentions.
What is this fatal flaw? It is the fact that government can
obtain virtually unlimited resources by means of the coercive
tax power (i.e., limited only by the total resources of society).
Private businesses must obtain their funds from private investors. This
allocation of funds by investors, based on time preference and
foresight, “rations” funds and resources to the
most profitable and therefore the most serviceable uses. Private firms
can get funds only from consumers and investors;
they can get funds, in other words, only from people who value and buy
their services and from savers who are willing to risk investment of
their saved funds in anticipation of profit. In short, payment and
service are, we repeat, indissolubly linked on the market. But
government, on the other hand, can get as much money as it likes. The
free market therefore provides a “mechanism,” which
we have analyzed in detail, for allocating funds for future
and present consumption, for directing resources to their most
value-productive uses for all the people. It thereby provides a means
for businessmen to allocate resources and to price services to
insure optimum use. Government, however, has no checkrein on itself,
i.e., no requirement of meeting a test of profit-and-loss or
valued service to consumers, to permit it to obtain funds. Private
enterprise can get funds only from satisfied, valuing customers and
from investors guided by present and expected future profits
and losses. Government gets more funds at its own whim.
With the checkrein gone, gone also is any opportunity for
government to allocate resources rationally. How can it know
whether to build road A or road B, whether to
“invest” in a road or a school—in fact,
how much to spend for all of its activities? There is no rational way
that it can allocate funds or even decide how much to have. When there
is a shortage of teachers or schoolrooms or police or streets,
the government and its supporters have only one answer: more money. The
people must relinquish more of their money to the government. Why is
this type of answer never offered on the free market? The reason is
that money must always be withdrawn from some other
use in consumption or investment—and this withdrawal
must be justified. On the market, justification is provided by the test
of profit and loss—the indication that the most
urgent wants of the consumers are being satisfied. If an enterprise or
product is earning high profits for its owners, and these profits are
expected to continue, more money will be
forthcoming; if not, and losses are being incurred, money will flow out
of the industry. The profit-and-loss test serves as the critical guide
for directing the flow of productive resources. No such guide exists
for government, which therefore has no rational way to decide how
much money to spend in total or in each specific
line. The more money it spends, the more service, of course, it can
supply—but where to stop?
Proponents of government enterprise may retort that the
government should simply tell its bureau to act as if
it were a profit-making enterprise and to establish itself in the same
way as a private business. There are two basic flaws in this theory:
(1) It is impossible to play enterprise. Enterprise
means risking one’s own money in investment. Bureaucratic
managers and politicians have no real incentive to develop
entrepreneurial skills, to really adjust to consumer demands. They do
not risk loss of their money in the enterprise. (2) Aside from the
question of incentives, even the most eager managers could not
function as a business. For, regardless of the treatment accorded the
operation after it is established, the initial
launching of the firm is made with government money, and therefore by
coercive levy. A fatally arbitrary element has been “built
into” the very vitals of the enterprise. Furthermore, future
decisions on expenditures will be made out of tax funds and will
therefore be subject to the same flaw. The ease of obtaining money will
inherently distort the operations of government enterprise. Moreover,
suppose that the government “invests” in an
enterprise E. Either the free market, left alone, would also have
invested in this selfsame enterprise, or it would not. If it would
have, then the economy suffers, at the very least, from the
“take” going to the intermediary bureaucracy. If
not, and this is almost certain, then it follows immediately that the
expenditure on E is a distortion of private utility on the
market—that some other expenditure would have brought greater
monetary returns. It follows once again that a government
enterprise cannot duplicate the conditions of private business.
In addition, the establishment of government enterprise
creates an “unfair” competitive advantage
over private firms, for at least part of its capital was gained by
coercion rather than service. It is clear that government,
with its subsidization, can drive a private business out of the field.
Private investment in the same industry will be greatly restricted,
since future investors will anticipate losses at the hands of
privileged governmental competitors. Moreover, since all
services compete for the consumer’s dollar, all
private firms and all private investment will to some degree be
affected and hampered. And when a new government enterprise
begins, it generates fears in other industries that they will be next,
that they will either be confiscated or forced to compete with
government-subsidized enterprises. This fear tends to repress
productive investment further and thus lower the general
standard of living still more.
Another argument, used quite correctly by “leftist”
proponents of government ownership, is this: If business operation is
so desirable, why take such a tortuous route? Why not scrap
government ownership and turn the whole operation over to
private business enterprise? Why go to such elaborate lengths to try to
imitate the apparent ideal (private ownership) when the ideal may be
pursued directly? The call for business principles in
government, therefore, makes little sense, even if that call
could be successful.
Many “criteria” have been offered by writers as
guides for the pricing of government services. One criterion supports
pricing according to “marginal cost.” As we have
indicated above, however, this is hardly a criterion at all
and rests on classical fallacies of price determination by
costs. “Marginal” varies according to the
period of time surveyed. And costs are not in fact static but flexible;
they change according to prices and hence cannot be used as a guide to
the setting of prices. Moreover, prices equal average costs only in
final equilibrium, and equilibrium cannot be regarded as an ideal for
the real world. The market only tends toward this
goal. Finally, costs of government operation will be higher than for
similar operations on the free market.
Government enterprise will not only hamper and repress private
investment and entrepreneurship in the same industry and in industries
throughout the economy; it will also disrupt the entire labor
market. For the government (a) will decrease
production and living standards in the society by siphoning
off potentially productive labor to the bureaucracy; (b)
using confiscated funds, it will be able to pay more than the market
rate for labor and hence set up a clamor by government job-seekers for
an expansion of the unproductive bureaucratic machine; and (c)
the government’s high tax-supported wages may well mislead
workers into believing that this reflects the market wage in private
industry, thus causing unwanted unemployment.
The inefficiencies of government operation are compounded by several
other factors. As we have seen, a government enterprise competing in an
industry can usually drive out private owners, since the government can
subsidize itself in many ways and supply itself with unlimited
funds when desired. In cases where it cannot compete even under these
conditions, it can arrogate to itself a compulsory monopoly, driving
out competitors by force. This was done in the United States in the
case of the post office.
When the government thus
grants itself a monopoly, it may go to the other extreme from free
service; it may charge a monopoly price. Charging a monopoly
price—now identifiably different from a free-market
price—distorts resources again and creates an
artificial scarcity of the particular good. It also permits an
enormously lowered quality of service. A governmental monopoly
need not worry that customers may go elsewhere or that inefficiency may
mean its demise.
It is particularly absurd
to call for “business principles” where a
government enterprise functions as a monopoly. Periodically, for
example, there are demands that the post office be put on a
“business basis” and end its deficit, which must be
paid by the taxpayers. But ending the deficit of an inherently and
necessarily inefficient government operation does not mean going on a
business basis. To cover costs, the price must be raised high enough to
achieve a monopoly price and so camouflage and compensate for the
government’s inefficiencies. A monopoly price will levy an
excessive burden on the users of the postal service, especially since
the monopoly is compulsory. On the other hand, we have seen that even
monopolists must abide by the consumers’ demand schedule. If
this demand schedule is elastic enough, it may well happen that a
monopoly price will reduce revenue so much or cut down so much on its
increase that a higher price will increase deficits
rather than reduce them. An outstanding example has been the New York
City subway system in recent years.
E.
Centers of Calculational Chaos
We have seen in chapter 10 above that one cartel or one firm could not
own all the means of production in the economy, because it could not
calculate prices and allocate factors in a rational manner.
And we have seen that this is the reason why State socialism could also
not plan or allocate rationally. We further noted that two or more
stages could not be totally integrated vertically on the
market—for total integration would eliminate a whole segment
of the market and establish an island of calculational and
allocational chaos, an island that would preclude optimal
planning for profits and maximum satisfaction for the
consumers.
In the case of simple government ownership, still another
extension of this thesis becomes evident. For each
governmental firm introduces its own island of
chaos into the economy; there is no need to wait for full
socialism for chaos to begin its work. No government
enterprise can ever determine prices or costs or allocate
factors or funds in a rational, welfare-maximizing manner. No
government enterprise could be established on a “business
basis” even if the desire were present. Thus, any
governmental operation injects a point of chaos into the economy; and
since all markets are interconnected in the economy, every
governmental activity disrupts and distorts pricing, the
allocation of factors, consumption/investment ratios, etc.
Every government enterprise not only lowers the social
utilities of the consumers by forcing the allocation of funds to other
ends than those desired by the public; it lowers the utility of
everyone (including the utilities of some government officials) by
distorting the market and spreading calculational chaos. The greater
the extent of government ownership, of course, the more
powerful will this impact become.
F.
Conflict and the Command Posts
Aside from its purely economic consequences, government ownership has
another kind of impact on society; it necessarily substitutes conflict
for the harmony of the free market. Since government service means
service by one set of decision-makers, it comes to mean uniform
service. The desires of all those forced, directly or indirectly, to
pay for the government service cannot be satisfied. Only some forms of
the service can or will be produced by the government agency. As a
result, government enterprise creates enormous caste conflicts
among the citizens, each of whom has different ideas on the best form
of service. In the final result, government enterprise can hardly fail
to substitute its own values, or the values of one set of customers,
for the values of all others. Artificially standardized services of
poorer quality—fit to governmental taste or
convenience—will hold sway, in contrast to the diversified
services of higher quality which the free market supplies to
fit the tastes of a multitude of individuals.
In recent years government schools in America have furnished a striking
example of such problems and conflicts. Some parents prefer racially
segregated schools; others prefer integrated education. Some
parents want their children taught socialism; others want antisocialist
teaching in the schools. There is no way that the government can
resolve these conflicts. It can only impose the will of one group by
coercion and leave the others dissatisfied and unhappy.
Whichever type of school is chosen, some groups of parents will suffer.
On the other hand, there is no such conflict on the free market, which
provides any type of service demanded. On the market, those
who want segregated or integrated, prosocialist or individualist,
schools can have their wants satisfied. It is obvious, therefore, that
governmental, as opposed to private, provision of services, lowers the
standard of living of much of the population.
The degrees of government ownership in the economy vary from one
country to another, but in all countries the State
has made sure that it owns and monopolizes the vital nerve centers, the
command posts of the society. It has acquired compulsory
monopoly ownership over these command posts, and it has always
asserted, without proof, that private ownership and enterprise in these
fields is simply and a priori impossible.
Such vital command posts are defense, money (the mint and, nowadays,
note issue), rivers and coastal seas, streets and highways,
land generally (the “public domain” and the power
of “eminent domain”), and the post office.
The defense function is particularly vital to the
State’s existence, for on its virtual monopoly of
force depends its ability to extract taxes from its citizens. Another
critical command post held, though not always monopolized by,
the State is education. For government schooling permits the
influencing of the youthful mind to accept the virtues of the
government under which it lives and of the principle of government
intervention. Conservatives who often attack
“socialistic” teaching in government
schools are particularly wide of the mark, for the very fact that a
government school exists and is therefore presumed to be good teaches
its little charges the virtues of government ownership by
example. And if government ownership is good and even preferable in
schooling, why not for other educational media, e.g.,
newspapers—or for other important social services?
Even where the government does not have a compulsory monopoly
of schooling, it approaches this ideal by compelling
attendance of all children at either a government school or a
private school approved by the government. Compulsory
attendance brings into the schools those who do not desire or cannot
benefit from schooling and forces them out of such competing fields as
leisure and business employment.
G.
The Fallacies of “Public” Ownership
Finally, government ownership is often referred to as
“public” ownership (the “public
domain,” “public schools,” the
“public sector”). The implication is that
when government owns anything, every member of the public owns
equal shares of that property. But we have seen that the
important feature of ownership is not legal formality but actual rule,
and under government ownership it is the government
officialdom that controls and directs, and therefore
“owns,” the property. Any member of the
“public” who thinks he owns the property
may test this theory by trying to appropriate for his own individual
use his aliquot part of government property.
While rulers of government own “public” property,
their ownership is not secure in the long run, since they may
always be defeated in an election or deposed. Hence government
officials will tend to regard themselves as only transitory owners of
“public” resources. While a private owner,
secure in his property and its capital value, may plan the use of his
resource over a long period of time in the future, the government
official must exploit “his” property as
quickly as he can, since he has no security of tenure. And even the
most securely entrenched civil servant must concentrate on present use,
because government officials cannot usually sell the
capitalized value of their property, as private owners can. In short,
except in the case of the “private property” of a
hereditary monarch, government officials own the current use
of resources, but not their capital value. But if a resource itself
cannot be owned, but only its current use, there will rapidly
ensue an uneconomic exhaustion of the resource, since it will
be to no one’s benefit to conserve it over a period of time,
and yet to each owner’s advantage to use it up quickly. It is
particularly curious, then, that almost all writers parrot the notion
that private owners, possessing time preference, must take the
“short view” in using their resources, while only
government officials are properly equipped to exercise the
“long view.” The truth is precisely the reverse.
The private individual, secure in his capital ownership, can
afford to take the long view because of his interest in
maintaining the capital value of his resource. It is the government
official who must take and run, who must exploit the property quickly
while he is still in command.
H.
Social Security
Before ending our discussion of specific governmental
activities, we may note in passing a curiously popular form of
government expenditure: “social security.”
Social security confiscates the income of wage earners, and then, most
people presume, it invests the money more wisely than they
could themselves, later paying out the money to the former wage earners
in their old age. Considered as “social insurance,”
this is a typical example of government enterprise: there is no
relation between premiums and benefits, the latter changing yearly
under the impact of political pressures. On the free market,
anyone who wishes may invest in an insurance annuity or in
stocks or real estate. Compelling everyone to transfer his
funds to the government forces him to lose utility. Thus, even on its
face, it is difficult to understand the great popularity of
the social security program. But the true nature of the program differs
greatly from the popular image. For the government does not
invest the funds it takes in taxes; it simply spends them, giving
itself its own bonds which must later be cashed when the benefits fall
due. The cash, of course, can be obtained only by further
taxation. Thus the public must pay twice
for one payment of social security. The program is essentially one of
making more palatable a general taxation of lower-income,
wage-earning groups.
I.
Socialism and Central Planning
When government ownership or control extends to the entire
productive system, then the economic system is called socialism.
Socialism, in short, is the violent abolition of the market, the
compulsory monopolization of the entire productive sphere by the State.
There are two and only two ways that any economy can be organized. One
is by freedom and voluntary choice—the way of the market. The
other is by force and dictation—the way of the State. To
those ignorant of economics, it may seem that the way of the market is
only anarchic confusion and chaos, while the way of the State
constitutes genuine organization and “central
planning.” On the contrary, we have seen in this book what an
amazing and flexible mechanism the market is for satisfying the wants
of all individuals. State operation or intervention is, on the other
hand, far less efficient and creates many disruptive and cumulative
problems of its own. Moreover, a socialist State, deprived of the real
market and its determination of prices for producers’ goods, cannot
calculate and can therefore run a productive system only in
chaotic fashion. The economics of socialism—a whole
branch of economics of its own—can only be touched upon here;
suffice it to say that Mises’ demonstration of the
impossibility of economic calculation under socialism has
never been successfully refuted.
Here we might mention just a few points on the economics of socialism.
One, since ownership is, de facto, the control of a
resource, a Nazi, Fascist, or other “centrally
planned” system is as much “socialism” as
a Communist regime that officially nationalizes property.
Secondly, the extent of
socialism in the present-day world is at the same time underestimated
in countries such as the United States and overestimated
in Soviet Russia. It is underestimated because the expansion
of government lending to private
enterprise in the United States has been generally neglected, and we
have seen that the lender, regardless of his legal status, is also an
entrepreneur and part owner. The extent of socialism is overestimated
because most writers ignore the fact that Russia, socialist as she is,
cannot have full socialism as long as she can still refer to the
relatively free markets existing in other parts of the world. In short,
a single socialist country or bloc of countries, while
inevitably experiencing enormous difficulties and wastes in planning,
can still buy and sell and refer to the world market and can therefore
at least vaguely approximate some sort of rational pricing of
producers’ goods by extrapolating from that market.
The well-known wastes and
errors of this partial socialist planning are negligible
compared to what would be experienced under the total calculational
chaos of a world socialist state.
Another neglected factor diminishing the extent of planning in
socialist countries is “black market” activities,
particularly in commodities (candy, cigarettes, drugs,
stockings, etc.) that are easy to conceal. Even in bulkier commodities,
falsification of records and extensive graft may bring some sort of
limited market—a market violating all the socialist
plans—into existence.
Moreover, it should be noted that a centrally
“planned” economy is a centrally prohibited
economy. The concept of “social engineering” is a
deceptive metaphor, since in the social realm, it
is largely people who are being planned, rather
than the inanimate machinery of engineering blueprints. And
since every individual is by nature, if not always by law, a
self-owner and self-starter—i.e., a self-energizer, this
means that central orders, backed up, as they must be under socialism,
by force and violence, effectively prohibit
all the individuals from doing what they want most or what they believe
themselves to be best fitted to do. If the Central Planning Board, in
short, orders X and Y to Pinsk to work as truck drivers, this means
that X and Y are effectively and coercively prohibited
from doing what they would have done voluntarily: perhaps X would have
gone to Leningrad to be a longshoreman, and perhaps Y would have stayed
around to tinker in his workshop and invent a new and highly useful
device.
The latter point brings us to another grave defect of central planning:
inventions, innovations, technological developments, by their very
nature, by definition, cannot be predicted in advance and therefore
cannot be centrally and bureaucratically planned.
Not only does no one know what will be invented when;
no one knows who will do the inventing. Clearly, a
centrally prohibited economy, irrational and inefficient enough for given
ends and given means and techniques at any point of time, is all the
more incompetent if a flow of inventions and new development are
desired in society. Bureaucracy, incompetent enough to plan a
stationary system, is vastly more incompetent at planning a
progressive one.
As Thomas Mackay aptly stated:
“We can have exactly as many paupers as the country chooses
to pay for.” Thomas Mackay, Methods of Social Reform
(London: John Murray, 1896), p. 210. Private charity to the poor, on
the other hand, would not have the same vicious-circle effect, since
the poor would not have a continuing compulsory claim on the rich. This
is particularly true where private charity is given only to the
“deserving” poor. On the nineteenth-century concept
of the “deserving poor,” cf. Barbara Wootton, Social
Science and Social Pathology (London: George Allen
& Unwin, 1959), pp. 51, 55, and 268ff.
The reader may gauge from the
following anecdote by an admirer of such a drive just who
was the true friend of the poor organ-grinder—his customer or
the government:
During
a similar campaign to clean up the streets of organ-grinders (most of
whom were simply licensed beggars) a woman came up to LaGuardia at a
social function and begged him not to deprive her of her favorite
organ-grinder.
“Where
do you live?” he asked her.
“On
Park Avenue!”
LaGuardia
successfully pushed through his plan to eliminate the organ-grinders
and the peddlers, despite the pleas of the penthouse slummers. (Newbold
Morris and Dana Lee Thomas, Let the Chips Fall [New
York: Appleton-Century-Crofts, 1955], pp. 119–20)
See Murray N. Rothbard,
“Government in Business” in Essays on
Liberty (Irvington-on-Hudson, N.Y.: Foundation for Economic
Education, 1958), IV, 186ff. It is therefore characteristic of
government ownership and “enterprise” that the
consumer becomes, not a “king” to be courted, but a
troublesome fellow bent on using up the “social”
product.
Thus, the government official may
select a road that will yield him or his allies more votes.
Cf. Ludwig von Mises, Bureaucracy
(New Haven: Yale University Press, 1946), pp. 50, 53.
Various fallacious criteria have
been advanced for deciding between private and state action. One common
rule is to weigh “marginal social costs” and
benefits against “marginal private costs” and
benefits. Apart from other flaws, there is no such entity as
“society” separate from constituent individuals, so
that this preferred criterion is simply meaningless.
See the interesting pamphlet by
Frank Chodorov, The Myth of the Post Office
(Hinsdale, Ill.: Henry Regnery Co., 1948). On a similar situation in
England, see Frederick Millar, “The Evils
of State Trading as Illustrated by the Post Office” in Thomas
Mackay, ed., A Plea for Liberty (New York: D.
Appleton Co., 1891), pp. 305–25. For a portrayal of the
political factors that have systematically distorted economic
considerations in setting postal rates in the United States, see
Jane Kennedy, “Development of Postal Rates:
1845–1955,” Land Economics,
May, 1957, pp. 93–112; and Kennedy, “Structure and
Policy in Postal Rates,” Journal of Political
Economy, June, 1957, pp. 185–208.
Only governments can make
self-satisfied announcements of cuts in service in order to
effect economies. In private business, economies must be made as
corollaries to improvements in service. A recent example of a cut in
government service—in the midst of improving private services
in most other fields—was the decline in American postal
deliveries from two to one a day, coupled, of course, with perennial
requests for higher rates. When France nationalized the important
Western Railway system in 1908, freight was increasingly damaged,
trains slowed down, and accidents grew at such a pace that an
economist caustically observed that the French government had added
railway accidents to its growing list of monopolies. See
Murray N. Rothbard, “The Railroads of France,” Ideas
on Liberty, September, 1955, p. 42.
Ironically enough, the higher
fares have driven many customers to buying and driving their own cars,
thus aggravating the perennial traffic problem (shortage of government
street space) even further. Another example of government intervention
creating and multiplying its own difficulties! On the subways, see
Ludwig von Mises, “The Agony of the Welfare State,”
The Freeman, May 4, 1953, pp. 556–57.
It might be objected that
individual stockholders of corporations cannot do this either, e.g., a
General Motors stockholder is not allowed to seize a car in lieu of
cash dividends or in exchange for his stock. Yet stockholders do
own their company, and this example precisely proves our point. For the
individual stockholder can contract out of his company; he can sell
his aliquot shares of General Motors stock to someone else. The subject
of government cannot contract out of that
government; he cannot sell his “shares” in the post
office, for example, because he has no such shares. As F.A. Harper has
succintly stated: “The corollary of the right of ownership is
the right of disownership. So if I cannot sell a thing, it is evident
that I do not really own it.” Harper, Liberty: A
Path to Its Recovery, pp. 106, 32. Also see
Isabel Paterson, The God of the Machine (New York:
Putnam’s, 1943), pp. 179ff., and T. Robert Ingram, Schools:
Government or Public? (Houston: St. Thomas Press,
n.d.).
It might be noted that even if all
the fallacious planks of the Henry George structure were conceded, the
Single Tax program would still not follow from the premises. As
Benjamin Tucker brilliantly demonstrated years ago, the most
that could possibly be established would be each
man’s “right” to his tiny
aliquot part of the site value of every plot of land—not
the State’s right to the whole value.
Tucker, Individual Liberty, pp. 241–43.
Those who object that private
individuals are mortal, while “governments are
immortal,” indulge in the fallacy of conceptual realism at
its starkest. “Government” is not a real acting
entity, but rather a type of interpersonal action adopted by actual
individuals.
See the literature referred to in
chapter 10, above, on the economics of socialism. Also John Jewkes, Ordeal
by Planning (New York: Macmillan & Co., 1948). For
application to Soviet practice, see Boris Brutzkus,
Economic Planning in Soviet Russia (London:
Routledge, 1935) and such recent material as G.F. Ray,
“Industrial Planning in Hungary,” Scottish
Journal of Political Economy, June, 1960; E. Stuart
Kirby, “Economic Planning and Policy in Communist
China,” International Affairs, April,
1958; P.J.D. Wiles, “Changing Economic Thought in
Poland,” Oxford Economic Papers, June,
1957; Alec Nove, “The Politics of Economic
Rationality,” Social Research, Summer,
1958; and especially, Nove, “The Problem of
‘Success Indicators’ in Soviet Industry,”
Economica, February, 1958. See below on socialist
planning in connection with growth and underdevelopment.
A chief difference is that a
formal Communist-style expropriation makes it far more difficult to desocialize
later.
The first one to point this out
was Ludwig von Mises, in his Human Action, pp.
698–99. It is particularly interesting to find an empirical
confirmation in Wiles, dealing with Communist planning:
What
actually happens is that “world prices,” i.e., capitalist
world prices, are used in all intra-[Soviet] bloc trade. They
are translated into rubles . . . and entered into bilateral clearing
accounts. To the question, “What would you do if there were
no capitalist world?” came only the answer
“We’ll cross that bridge when we come to
it.” In the case of electricity the bridge is already under
their feet; there has been great difficulty in pricing it since there
is no world market. (Wiles, “Changing Economic Thought in
Poland,” pp. 202–03)
On
the difficulties encountered by the Soviet bloc in using world market
prices, see especially Horst Mendershausen,
“The Terms of Soviet-Satellite Trade: A Broadened
Analysis,” Review of Economics and Statistics,
May, 1960, pp. 152–63.
For an interesting account of the
recent growth of organized private enterprises in Soviet Russia,
illegal but protected by local graft, see Edward
Crankshaw, “Breaking the Law in a Police State:
Regimentation Can’t Curb Russians’
Anarchic Spirit,” New York Herald-Tribune,
August 17, 1960.
Recent researches have shown the
fallacy of the common view that modern inventions and applied
technological developments can take place only in very large-scale,
even centrally planned, laboratories. See particularly the brilliant
work of John Jewkes, David Sawers, and Richard Stillerman, The
Sources of Invention (London: Macmillan & Co., 1958).
Also see John R. Baker, Science and the
Planned State (New York: Macmillan & Co., 1945). For
a useful summary of recent literature in this field, see
Richard R. Nelson, “The Economics of Invention: A Survey of
the Literature,” The Journal of Business,
April, 1959, pp. 101–27. Soviet science has, of course, been
able to copy the technical achievements of the West; yet, on the
inefficiencies of Soviet science, see Baker, Science
and the Planned State, and Baker, Science and the
Sputniks (London: Society for Freedom in Science, December,
1958). Of interest on the inherent inefficiencies of governmental
military research is the Hoover Commission Task Force Report:
Subcommittee of the Commission on Organization of the
Executive Branch of Government, Research Activities in the
Department of Defense and Defense-Related Agencies
(Washington, D.C.: April, 1955). On atomic energy and government, see,
in addition to Jewkes, Sawers, and Stillerman, Alfred
Bornemann, “Atomic Energy and Enterprise
Economics,” Land Economics, August, 1954.
Virtually the central theme of Hayek’s Constitution
of Liberty is the importance of freedom for innovations and
progress, in the widest sense.
Two of the
arguments for government activity most favored by economists are the
“collective goods” and “external
benefit” arguments. For a critique, see Appendix B below.
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