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12. The Economics of Violent Intervention in the... > 9. Binary Intervention: Government Expenditures

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.