Wherever taxes fall, they blight, hamper, and distort the productive activity of the market. Clearly, a tax on wages will distort the allocation of labor effort, a tax on profits will cripple the profit-and-loss motor of the economy, a tax on interest will tend to consume capital, etc. One commonly conceded exception to this rule is the doctrine of Henry George that ground-landowners perform no productive function and that therefore the government may safely tax site value without reducing the supply of productive services on the market.

In this necessarily hasty overview of the high spots of taxation theory, we have space for only one more comment: a criticism of the very common view that, in a business boom, the government should increase taxation “in order to sop up excess purchasing power,” and thereby halt the inflation and stabilize the economy. We shall discuss the problems of inflation, stabilization, and the business cycle below; here, let us note the oddity of assuming that a tax is somehow less of a social cost, less of a burden, than a price. Thus, suppose, in a boom, that Messrs.

A triangular intervention occurs when an intervener either compels a pair of people to make an exchange or prohibits them from making an exchange. The coercion may be imposed on the terms of the exchange or on the nature of one or both of the products being exchanged or on the people doing the exchanging.

Triangular interference with an exchange can alter the terms of the exchange or else in some way alter the nature of the product or the persons making the exchange. The latter intervention, product control, may regulate the product itself (e.g., a law prohibiting all sales of liquor) or the people selling or buying the product (e.g., a law prohibiting Mohammedans from selling—or buying—liquor).

UP TO THIS POINT WE HAVE been assuming that no violent invasion of person or property occurs in society; we have been tracing the economic analysis of the free society, the free market, where individuals deal with one another only peacefully and never with violence. This is the construct, or “model,” of the purely free market. And this model, imperfectly considered perhaps, has been the main object of study of economic analysis throughout the history of the discipline.

Intervention is the intrusion of aggressive physical force into society; it means the substitution of coercion for voluntary actions. It must be remembered that, praxeologically, it makes no difference what individual or group wields this force; the economic nature and consequences of the action remain the same.

In tracing the effects of intervention, we must explore both the direct and the indirect consequences. In the first place, intervention will have direct, immediate consequences on the utilities of those participating. On the one hand, when the society is free and there is no intervention, everyone will always act in the way that he believes will maximize his utility, i.e., will raise him to the highest possible position on his value scale. In short, everyone’s utility ex ante will be “maximized” (provided we take care not to interpret “utility” in a cardinal manner).