Quarterly Journal of Austrian Economics
The Impact of Transfer Payments on Economic Growth: John Stuart Mill versus Ludwig von Mises
Volume 5, No. 1 (Spring 2002)
Our analysis shows that Mises’s critique of “confiscatory interventionism” is the appropriate paradigm for interpreting events in the American economy during the last third of the twentieth century. As the "transfer state: has grown in scope, the cumulative deadweight losses to the economy have increased until, during the bulk of the decade of the 1990s, they have driven real per capita levels of output to levels that are about one-eighth below what they might have been. Losses of this magnitude are quite inconsistent with the popular view held in significant political circles to the effect that government activity of the tax and transfer variety is, at its worst, a zero-sum game. This is a position popularized by Lester Thurow in his book The Zero-Sum Society. Why do losses of this sort occur? Mises answers that question on page 803 of Human Action where he points out that economists ask, “what are the effects of confiscatory taxation on capital accumulation?” His answer says it all: “The greater part of that portion of the higher incomes which is taxed away would have been used for the accumulation of additional capital.” Without that capital, economic growth slows, and the deadweight losses mount.
Cite This Article
Gallaway, Lowell, and Richard Vedder. The Impact of Transfer Payments on Economic Growth: John Stuart Mill Versus Ludwig von Mises. The Quarterly Journal of Austrian Economics 5, No. 1 (Spring 2002): 57–65.