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The Problem with Public Goods and So-Called Economic Power

01/21/2022David Gordon

In this week’s column, I’d like to discuss two arguments Murray Rothbard gives that respond to influential criticisms of the free market. His answers to the two arguments follow a common strategy. In each case, he rejects the key premise of the argument.

The first of these arguments has to do with what are called “public” or “collective” goods. It may well be, supporters of the argument claim, that the market can supply efficiently most goods and services. But it cannot supply public goods, such as defense, that are nonrivalrous and nonexcludable. A nation that installs an antimissile defense system, for example, will necessarily protect the whole country, not just individuals who pay for the service of defense. Furthermore, people can’t be excluded from the good: a supplier of the good can’t say to people, “If you refuse to pay for the good, we won’t supply it to you.”

Rothbard’s response is characteristically radical. He denies that goods of this kind exist. He says,

Collective consumption goods, according to Samuelson, are those “which all enjoy in common in the sense that each individual's consumption of such a good leads to no subtraction from any other individual’s consumption of that good.”… we may go further and state that no goods would ever fit into Samuelson’s category of “collective consumption goods.”… “National defense” is surely not an absolute good with only one unit of supply. It consists of specific resources committed in certain definite and concrete ways—and these resources are necessarily scarce. A ring of defense bases around New York, for example, cuts down the amount possibly available around San Francisco. Furthermore, a lighthouse shines over a certain fixed area only. Not only does a ship within the area prevent others from entering the area at the same time, but also the construction of a lighthouse in one place limits its construction elsewhere. In fact, if a good is really technologically “collective” in Samuelson’s sense, it is not a good at all, but a natural condition of human welfare, like air—superabundant to all, and therefore unowned by anyone. Indeed, it is not the lighthouse, but the ocean itself—when the lanes are not crowded—which is the “collective consumption good,” and which therefore remains unowned. Obviously, neither government nor anyone else is normally needed to produce or allocate the ocean.

(Rothbard is talking about Paul Samuelson, the most important theorist of public goods.)

When you first consider this argument, you might think it is open to an objection. Even if there aren’t goods that are completely consumed jointly and are absolutely nonrivalrous, aren’t goods like defense more or less like that? Is Rothbard saying that if a concept doesn’t have instances that precisely meet its terms, it is worthless? That seems overly strict.

This objection ignores the point of Rothbard’s remark. He is saying that unless you use an exact definition that doesn’t rely on individual judgments to apply, you have no scientific basis on which to proceed. You are then in the realm of value judgments, and economics is supposed to be a value-free science. He would say to economists who make such judgments, “You should make clear the value judgments you are using, rather than pretend to be objective scientists.”

Rothbard refutes with equal quickness the other argument I want to consider. It’s often claimed by opponents of the free market that workers are coerced to work for capitalist employers. They aren’t legally compelled to do so, but if they don’t, they will starve. What kind of “freedom” is this?

Rothbard’s response is that even if it’s true that workers have no reasonable alternative to working for capitalist employers (and this is a very doubtful assumption), there is nothing coercive about this situation. An employer who offers someone a job at a certain wage is simply making an offer, even if the offer is a poor one. A worker who takes the offer has judged that it is better for him to accept the offer than to refuse it. The offer does not worsen his situation. If the employer made no offer, he would be leaving the worker in his current state of affairs. Rothbard says this:

What exactly has the employer [who won’t offer higher wages] done? He has refused to continue to make a certain exchange, which the worker preferred to continue making. Specifically, A, the employer, refuses to sell a certain sum of money in exchange for the purchase of B's labor services. B would like to make a certain exchange; A would not. The same principle may apply to all the exchanges throughout the length and breadth of the economy. A worker exchanges labor for money with an employer; a retailer exchanges eggs for money with a customer; a patient exchanges money with a doctor for his services; and so forth. Under a regime of freedom, where no violence is permitted, every man has the power either to make or not to make exchanges as and with whom he sees fit. Then, when exchanges are made, both parties benefit…. “Economic power,“ then, is simply the right under freedom to refuse to make an exchange. Every man has this power. Every man has the same right to refuse to make a proffered exchange.

Defenders of the “economic power” argument might say that Rothbard has made an unsupported assumption. He is assuming that the situation in which capitalists own the “means of production” and workers have the alternative of working for them or starving is just. For reasons that Rothbard and other economists have explained at length, the objection doesn’t accurately portray the real situation. But even if it did, the objection is irrelevant. Certainly, if the situation is unjust, that is a good objection to it, but then the objection is to that injustice, not to the offer by the employer. It’s essential when you are looking at an argument to consider the argument on its own terms, rather than turn from it to other arguments.

Note: The views expressed on Mises.org are not necessarily those of the Mises Institute.
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David Gordon is Senior Fellow at the Mises Institute and editor of the Mises Review.

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