Government expenditures52 are a coerced transfer of resources from private producers to the uses preferred by government officials. It is customary to classify government spending into two categories: resource-using, and transfer.

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.

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.

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.

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.

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.

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.

Binary intervention occurs, we have seen, when the intervener forces someone to transfer property to him. All government rests on the coerced levy of taxation, which is therefore a prime example of binary intervention. Government intervention, consequently, is not only triangular, like price control; it may also be binary, like taxation, and is therefore imbedded into the very nature of government and governmental activity.