The Influence and Significance of Human Action after 75 Years

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Calculation and Environmental Policy: Lessons from Human Action

TIMOTHY D. TERRELL

When Human Action was published in 1949, the environmental movement had not achieved the grip on policymaking that we see today. Rachel Carson’s Silent Spring would be published in 1962. Paul Ehrlich’s The Population Bomb, which an American journalist called “one of the most spectacularly foolish books ever published” (Last 2013, 7), and Garrett Hardin’s (1968) “The Tragedy of the Commons” would both appear in 1968. The first Earth Day and the establishment of the Environmental Protection Agency (EPA) would occur in 1970. Today, many people have completely accepted mainline environmentalism’s message that human freedom is creating climate catastrophe, impending resource exhaustion, overpopulation, and worsening pollution. Handing more power to the state is widely considered the only viable solution.

In writing Human Action, Mises did not devote much space to a direct discussion of environmental policy. Yet as we examine the book with an eye toward material related to environmental issues, we can see comments from Mises that show that his advances in economic calculation, his understanding of the function of private property, and his remarks on interest group politics are all applicable to today’s debates on environmental policy.

Externalities and Calculation

One of Mises’s most significant contributions to economics is his exposition of the socialist calculation problem. Without individuals revealing their preferences by voluntarily agreeing to give up a certain number of units of money for a product or, conversely, giving up a product for units of money, we can have no basis for economic calculation. This has numerous applications to environmental policies.

Environmental “externalities”—the side effects of our activities on bystanders who use the same air or water, or neighboring land—create calculation problems, as do government’s interventions to respond to them. In an underappreciated passage in chapter 23 of Human Action, Mises points out this problem of externalities—that a proprietor will “disregard those benefits which do not increase his own satisfaction and those costs which do not burden him. His conduct will deviate from the line which it would have followed if the laws were better adjusted to the economic objectives of private ownership. He will embark upon certain projects only because the laws release him from responsibility for some of the costs incurred. He will abstain from other projects merely because the laws prevent him from harvesting all the advantages derivable” (Mises 1998, 651). Mises is clear that the ability to dump some of the costs onto others results in calculation problems: “It is true that where a considerable part of the costs incurred are external costs from the point of view of the acting individuals or firms, the economic calculation established by them is manifestly defective and their results deceptive” (653).

At this point, most economists would argue that this is the point where government needs to step in to correct the “market failure.” But they would do well to read the rest of the paragraph in Human Action: “But this is not the outcome of alleged deficiencies inherent in the system of private ownership of the means of production. It is on the contrary a consequence of loopholes left in this system. It could be removed by a reform of the laws concerning liability for damages inflicted and by rescinding the institutional barriers preventing the full operation of private ownership” (653). For the proponents of mainstream “market failure” doctrine, however, handling externalities by employing liability reforms as Mises suggested is often passed over in favor of coercive intervention. These policies take several forms.

One is a tax on emissions, known as a “Pigovian tax” after Cambridge economist Arthur Cecil Pigou. Pigovian taxes are still commonly suggested today. For example, because of external costs resulting from the use of fossil fuels, numerous proposals for a federal carbon tax have appeared in the last several years, including the “Green New Deal.” Even some who claim to be libertarians have proposed them. Notably, Gary Johnson, who in 2016 was the Libertarian Party nominee for president, said that he was “open also to the notion of a carbon tax” (Goldberg 2016; Bishop 2016).

A second policy response involves regulatory decrees, often requiring the use of a specific technology to control pollution (“command-and-control” regulation). A policy requiring a particular emissions control device on a vehicle would be of this sort.

A third type of policy response is a cap-and-trade policy, such as the EPA’s Acid Rain Program, which began auctioning off sulfur dioxide permits in 1993. Tradable permit systems have a superficial appeal to market-friendly economists and policymakers because, after all, the permits trade in a market. Unfortunately, it’s only a quasi market, with the supply of permits dictated by regulators.

Though we might see certain advantages to one of these policies over another—tradable permits, for example, probably have some advantages over command-and-control regulation because they provide somewhat more flexibility for of the entrepreneur—they all fail to solve the calculation problem.

We can see some of the problems by examining Mises’s critique of arguments that the government should subsidize various activities. In the environmental context, we might see calls for subsidies on activities that create positive externalities (benefits which do not increase the proprietor’s satisfaction, as mentioned earlier). A subsidy on positive externalities would be the reverse of a tax on negative externalities, and is subject to the same problems.

For example, some would argue that since profit-seeking businesses will not engage in adequate (as determined by the subsidy advocates) planting of trees, recycling, conversion to electric vehicles, or habitat restoration, it becomes incumbent upon government to intervene. Mises’s response, addressing subsidies more generally, is instructive:

A project P is unprofitable when and because consumers prefer the satisfaction expected from the realization of some other projects to the satisfaction expected from the realization of P. The realization of P would withdraw capital and labor from the realization of some other projects for which the demand of the consumers is more urgent. The layman and the pseudo-economist fail to recognize this fact. They stubbornly refuse to notice the scarcity of the factors of production. . . . [To them, it] is merely the wantonness of the profit system that prevents the nation from enjoying gratuitously the pleasures expected from P.

Now, these short-sighted critics go on to say, the absurdity of the profit system becomes especially outrageous if the unprofitability of P is merely due to the fact that the entrepreneur’s calculations neglect those advantages of P which for them are external economies. From the point of view of the whole of society such advantages are not external. They benefit at least some members of society and would increase “total welfare.” The nonrealization of P is therefore a loss for society. As profit-seeking business, entirely committed to selfishness, declines to embark upon such unprofitable projects, it is the duty of government to fill the gap. Government should either run them as public enterprises or it should subsidize them in order to make them attractive for the private entrepreneur and investor. (Mises 1998, 654–55)

So goes the criticism of profit seeking. But Mises goes on to point out that funds for this project require the sacrifice of profitable projects that people otherwise would have carried out with the funds: “From the point of view of the consumers the employment of these means of production for the realization of an unprofitable project is wasteful. It deprives them of satisfactions which they prefer to those which the government-sponsored project can furnish them” (655; cf. 736, 737).

The government’s effort to increase the production of the positive externality–producing good with subsidies that match the value of the externality is therefore thwarted by two related and incontrovertible problems. First, it is impossible to determine whether, and to what extent, the free market underproduces the good. Second, it is impossible to determine whether any value created by the government subsidy is greater than the opportunity cost of the government spending. These problems are both manifestations of the same underlying problem of economic calculation described by Mises. Subsidizing habitat preservation, for instance, would require both knowledge of the optimal amount of habitat and knowledge of the benefits forgone when wealth is forcibly extracted from taxpayers. Inverting the problem, efforts to place a tax equal to the cost of a unit of carbon emissions into the air are futile, as air is not voluntarily exchanged in a market. And, as Mises says, “The prices of the market are the ultimate fact for economic calculation. It cannot be applied for considerations whose standard is not the demand of consumers as manifested on the market but the hypothetical valuations of a dictatorial body managing all national or earthly affairs. He who seeks to judge actions from the point of view of a pretended ‘social value,’ i.e., from the point of view of the ‘whole society,’ and to criticize them by comparison with the events in an imaginary socialist system in which his own will is supreme, has no use for economic calculation” (217).

However, many economists and bureaucrats continue to pretend that the necessary information is within their reach, or that the difficulty can simply be dismissed. William Baumol admitted the information problems in a defense of Pigovian taxes: “Despite the validity in principle of the tax-subsidy approach of the Pigovian tradition, in practice it suffers from serious difficulties. For we do not know how to estimate the magnitude of the social costs, the data needed to implement the Pigovian tax-subsidy proposals. For example, a very substantial proportion of the cost of pollution is psychic; and even if we knew how to evaluate the psychic cost of some one individual we seem to have little hope of dealing with effects so widely diffused through the population” (Baumol 1972, 316). Baumol later noted, “We do not know how to calculate the required taxes and subsidies and we do not know how to approximate them by trial and error” (Baumol 1972, 318).

So far, so good. But Baumol essentially dismissed these problems and proposed acting “on the basis of a set of minimum standards of acceptability,” finding “some maximal level of this pollutant that is considered satisfactory.” This sweeps the calculation problem (how much pollution is “acceptable” or “satisfactory”?) under the rug, which he admitted. “But,” Baumol contended, “if we permit ourselves to be paralyzed by councils of perfection we may have still greater cause for regret” (Baumol 1972, 318). In other words, it is better to do something to reduce pollution than to impose no pollution limits whatsoever.

This is not the case. It is quite possible for the “something” that government does to reduce pollution to be worse than the pollution problem that the policy is intended to solve. According to Mises’s arguments about the socialist calculation problem, government has no way of calculating the socially optimal level of pollution, because it is operating outside of the market system that would provide useful information as a basis for comparison. Even if it could somehow solve this problem, it faces constant pressures from interest groups who want to suppress competition by weaponizing regulation, about which more will be said below. It is, then, quite possible for the cure to be worse than the disease. In a free market, we would see privately imposed limits on pollution, often imposed via court cases regarding nuisance and torts (see, e.g., Rothbard 1982), so the choice is not solely between governmentally imposed limits or no limits.

It is appropriate to address here some relevant comments made by the celebrated Ronald Coase. There are some “free-market environmentalists” who regard Coase as essentially supportive of markets because he said that in cases of externalities, with sufficiently low transaction costs and well-defined property rights, parties that are free to exchange those rights with each other will move toward efficient outcomes and resolve externality disputes (Coase 1960). This is the “Coase theorem.” In comparison to command-and-control environmental regulation, there is a valuable point in this idea. A common-law system that better defined property rights over disputed air, water, rays of light, and so on would facilitate externality resolution better than ham-fisted regulators. But we should be careful because there are some underlying assumptions in Coase that we should not let slide by unchallenged.

In his introduction to his 1988 book The Firm, the Market, and the Law, a collection of Coase’s essays published a year before his receipt of the Nobel Prize in economics, Coase writes that it was a mistake to presume that the existence of an externality required government intervention:

It is easy to show that the mere existence of “externalities” does not, in itself, provide any reason for governmental intervention. Indeed, the fact that there are transaction costs and that they are large implies that many effects of people’s actions will not be covered by market transactions. Consequently, “externalities” will be ubiquitous. The fact that governmental intervention also has its costs makes it very likely that most “externalities” should be allowed to continue if the value of production is to be maximized. This conclusion is strengthened if we assume that government is not like Pigou’s ideal but is more like his normal public authority—ignorant, subject to pressure, and corrupt. Whether there is a presumption, when we observe an “externality,” that governmental intervention is desirable, depends on the cost conditions in the economy concerned. We can imagine cost conditions in which this presumption would be correct and also those in which it would not. It is wrong to claim that economic theory establishes such a presumption. What we are dealing with is a factual question. The ubiquitous nature of “externalities” suggests to me that there is a prima facie case against intervention, and the studies on the effects of regulation which have been made in recent years in the United States, . . . which indicate that regulation has commonly made matters worse, lend support to this view.

The concept of “externality” has come to play a central role in welfare economics, with results which have been wholly unfortunate. There are, without question, effects of their actions on others (and even on themselves) which people making decisions do not take into account. But, as employed today, the term carries with it the connotation that when “externalities” are found, steps should be taken by the government to eliminate them. As already indicated, the only reason individuals and private organizations do not eliminate them is that the gain from doing so would be offset by what would be lost (including the costs of making the arrangements necessary to bring about this result). If with governmental intervention the losses also exceed the gains from eliminating the “externality,” it is obviously desirable that it should remain. (Coase 1990, 24–26)

Now, after reading this, many of those who favor markets over coercive government interference will cheer, as none other than Ronald Coase has taken down the statists who see in externalities a clear justification for corrective taxes, regulation, etc.

But not so fast. Coase has not dealt adequately with Mises’s arguments concerning economic calculation. And in failing to do so, Coase leaves a hole large enough to drive an electric-powered bus full of environmental conference attendees through. Coase says that government intervention could be desirable depending on “cost conditions in the economy concerned.” What are these cost conditions? As Coase says, “We can imagine cost conditions in which this presumption [the presumption that government intervention is desirable] would be correct and also those in which it would not.” But that is all Coase has: imagining. In the absence of free markets, there is no way to pin down these “cost conditions” in particular situations, or to do anything more than speculate about what the costs of externalities or the costs of transactions or the costs of intervention might be. Coase here is tied to this cost-measurement chimera. His statement “If with governmental intervention the losses also exceed the gains from eliminating the ‘externality’ . . .” would leave us with fundamentally indefensible cost-measurement exercises as the only argument against intervention.

Later, in his Nobel acceptance speech, Coase made the same error when discussing his “infamous Coase Theorem” (“infamous” was his word). He said, “Since standard economic theory assumes transaction costs to be zero, the Coase Theorem demonstrates that the Pigovian solutions are unnecessary in these circumstances. Of course, it does not imply, when transaction costs are positive, that government actions (such as government operation, regulation or taxation, including subsidies) could not produce a better result than relying on negotiations between individuals in the market. Whether this would be so could be discovered not by studying imaginary governments but what real governments actually do” (Coase 1991).

Note that Coase believed that some kind of empirical study of governments could determine whether or not government intervention would produce improvements (measured, of course, by market values on output). The Misesian response is clear: We cannot measure these costs in the absence of freely acting individuals revealing their preferences through market transactions. Because government suppresses the market in favor of politically determined planning, no amount of study of government can reveal costs in a way that would allow us to find out whether government action will in fact “produce a better result” than the market.

Calculation across Time and Originary Interest

The problem of calculating costs becomes even more acute when we consider the passage of time. Many environmental policies are intended to prevent damage (or create benefits) that could theoretically occur in the distant future to people who are not yet born. This fails because, once again, government cannot calculate without the information revealed in market transactions. But we can know even less about the capabilities and priorities of our remote descendants, and the costs could extend generations into the future before these possible benefits materialize.

The preference of goods today to goods in the future is a basic fact of human existence, evidenced in the originary interest that prevails in market economies. In Human Action, Mises defines originary interest as “the ratio of the value assigned to want-satisfaction in the immediate future and the value assigned to want-satisfaction in remoter periods of the future” (Mises 1998, 523). While legislation might sometimes specify a discount rate to be used for certain purposes (e.g., for assessing the present value of damages incurred over a period of time), the originary interest rate is a product of human preferences. As such, “there cannot be any question of abolishing interest by any institutions, laws, and devices of bank manipulation. He who wants to ‘abolish’ interest will have to induce people to value an apple available in a hundred years no less than a present apple. What can be abolished by laws and decrees is merely the right of the capitalists to receive interest. But such laws would bring about capital consumption and would very soon throw mankind back into the original state of natural poverty” (529).

And yet it is not uncommon to see suggestions among environmentalists that the market-determined discount rate is too high, and that a proper accounting for the needs of future generations requires a lower rate, essentially abolishing it in some cases. For example, the Stern Review on the Economics of Climate Change, an influential 2006 study from the British government, employs a near-zero discount rate (0.1 percent per year) (Stern 2007). The implication for emissions-reduction policies, such as carbon taxes or emissions taxes, is that the tax today would need to be much higher, preventing investment in productive capital in the present. William Nordhaus (2007, 696; emphasis in original) points out the absurdity:

Suppose that scientists discover a wrinkle in the climate system that will cause damages equal to 0.1 percent of net consumption starting in 2200 and continuing at that rate forever after. How large a one-time investment would be justified today to remove the wrinkle that starts only after two centuries? Using the methodology of the Review, the answer is that we should pay up to 56 percent of one year’s world consumption today to remove the wrinkle. . . . In other words, it is worth a one-time consumption hit of approximately $30,000 billion today to fix a tiny problem that begins in 2200.

When we get into politically determined discount rates, where government rather than acting individuals in the market is determining the appropriate interest rate, we get all kinds of strange results. For example, the federal government spent $9 billion developing a waste repository for spent nuclear fuel at Yucca Mountain, Nevada, after which the plans were canceled. The facility was to have a design ensuring safety for 10,000 years into the future. A controversy arose when a National Academy of Sciences panel determined that in 270,000 years, the radiation dosage received by someone standing just outside the fence would be sixty times the allowable dose. A US Court of Appeals agreed that the 10,000-year period was too short. But the discount rate applied would have to be far smaller than what is normal, for an extension of the safety standard to 300,000 years to make sense. As economists Kip Viscusi, Joseph Harrington, and John Sappington (2018, 782) said,

Suppose we adopt a modest discount rate of 3 percent. Then a dollar of benefits 270,000 years from now has a present discounted value of (1/1.03)270,000. [This is, for all practical purposes, zero.] To see the effect of discounting, consider the following example. Instead of having only one person exposed to radiation at the Yucca Mountain fence, suppose we crammed 300 million people up against the fence. Also assume a worst case of radiation exposure that leads all of them to experience fatal cases of cancer. . . . On a discounted basis, the result of having 300 million people exposed to risk at the site would be the equivalent of a one in 100,000 chance of cancer today for a single person.

Trying, in the absence of market prices, to compare the benefits of resource use today and costs of pollution tomorrow falls afoul of the socialist calculation problem once more. It replaces the actual preferences of many millions of human beings with the dictates of central planners.

Calculation and Resource Depletion

The same problem arises with concerns about natural resource depletion. There are, of course, many examples of worries about exhaustion of this or that natural resource. We look back on many of these now and can clearly see that the worries were needless, either because the resource scarcity was resolved with increases in supply or because of transition to a different resource.

In 1920, the chief geologist of the US Geological Survey reported that only seven billion barrels of petroleum remained to be recovered with existing techniques. He predicted that at the annual rate of consumption of five hundred million barrels, American oil resources would be gone in fourteen years (by 1934). When 1934 arrived, twelve billion barrels had been produced, and an additional twelve billion barrels in proven reserves had been discovered (Hueckel 1975, 927–28).

Carl Pope, executive director of the Sierra Club, said in 2006 that “U.S. oil production peaked in 1971, and our proven reserves have declined by 20 percent since 1990. Worldwide, petroleum geologists say that as soon as 2010 we may reach the moment called ‘peak oil,’ when production tops off and begins its inexorable decline” (Pope 2006). He was writing this near a low point in US oil production. By 2010 US oil production was on the rise again, and by 2018 it had blown through the old 1971 peak (see US Energy Information Administration, n.d.-a). And while US proven reserves did decline from 1990 to 2006, reserves began to increase again. Just five years after Pope’s comment, proven reserves were already higher than they had been in 1990 (see US Energy Information Administration 2024), and they continued to rise until by 2022 they were 75 percent higher than they had been in 1990. Worldwide, global oil production was 81.8 million barrels of oil per day in 2023, down a bit from 2018 and 2019, but having almost completely recovered from its pandemic slump (see US Energy Information Administration, n.d.-b).

Though the predictions have been off so far, the idea that there will be a “peak oil” is reasonable. However, it will likely be caused by falling demand rather than insufficient supply. Fossil fuels will be replaced by other energy sources at some point. We do not know all the alternatives now, but efforts to accelerate or delay that transition by government fiat once again run up against the socialist calculation problem.

One of the most famous tests of resource exhaustion worries was the 1980 bet between Julian Simon and Paul Ehrlich. Simon bet Ehrlich that resource scarcity would become better, not worse, over time, and that therefore the inflation-adjusted prices of five raw materials to be chosen by Ehrlich would fall, not rise, in the future. Ehrlich chose five metals and a ten-year time period. They invested $1,000 on paper, with the agreement that if the prices rose, Simon would pay Ehrlich the difference, and if they fell, Ehrlich would pay Simon. By 1990, all five metals had fallen in inflation-adjusted prices, and Ehrlich sent Simon a check for $576.07 (Perry 2010).

But new worries always arise, and invariably the proposed solution from mainline environmentalists is more government intervention to regulate the rate of use of exhaustible resources. This is problematic for several reasons. One, which Mises points out in Human Action, is that we do not know what resources will in fact be in demand in the future. He writes,

Many people are alarmed by the reckless use of the deposits of minerals and oil which cannot be replaced. Our contemporaries, they say, squander an exhaustible stock without any regard for the coming generations. We are consuming our own birthright and that of the future. Now these complaints make little sense. We do not know whether later ages will still rely upon the same raw materials on which we depend today. It is true that the exhaustion of the oil deposits and even those of coal is progressing at a quick rate. But it is very likely that in a hundred or five hundred years people will resort to other methods of producing heat and power. Nobody knows whether we, in being less profligate with these deposits, would not deprive ourselves without any advantage to men of the twenty-first or of the twenty-fourth centuries. It is vain to provide for the needs of ages the technological abilities of which we cannot even dream. (Mises 1998, 383)

In the same section, Mises goes on to point out the contradiction contained in simultaneously complaining of resource exhaustion and monopolies over natural resources. Since monopolies will tend to reduce production to drive up the price, should we not expect those concerned about resource depletion to support monopolies, or at least cartels, in oil or other natural resources? But this isn’t what we see. And since in some cases worries about depletion have been supplemented with worries about pollution from the production and use of these same resources, we might expect that higher prices would result in celebration among mainline environmentalists. Instead, we see objections to collusion or other efforts to raise prices.

Mises is clear that economics does not try to justify monopoly prices, or condemn them. But he does say that it is a “grotesque distortion” to think of monopolization as a phenomenon linked to capitalism. Instead, we should speak of “monopoly interventionism” and “government-made cartels” (384). Actual free-market prices seem to be regarded as a nuisance by mainline environmentalists. Indeed, one of the most consistent threads in mainline environmentalism is a preference for government-organized prices and production. This is rooted in a supreme arrogance—the arrogance to assert that a few central planners can have knowledge of the most efficient sources of energy or uses of land or foods to eat—down to the best materials with which to manufacture a drinking straw. Most mainline environmentalists do not say that they wish to get rid of prices or the exchange of goods in something they would think of as a market. They simply wish to decide what should be produced, what the production process should be, what the prices should be, and what incomes people should have with which to pay those prices. But as Mises says, prices are “a market phenomenon . . . generated by the market process. . . .There is no such thing as prices outside the market. . . . It is . . . vain to ponder on what prices ought to be” (392).

Mises reminds us that the absence of property and free-market prices is at the root of resource depletion. Without ownership of a resource, or at least some widely accepted social rules concerning its use, it is at greater risk of being depleted. And property that is not owned is treated in much the same way as property that may be owned, but could be soon lost. Mises says,

There are institutional conditions that cause the persons involved to prefer satisfaction in the nearer future and to disregard entirely or almost entirely satisfaction in the more distant future. If the soil is on the one hand not owned by individual proprietors and on the other hand all, or certain people favored by special privilege or by the actual state of affairs, are free to make use of it temporarily for their own benefit, no heed is paid to the future. The same is the case when the proprietor expects that he will be expropriated in a not too distant future. In both cases the actors are exclusively intent upon squeezing out as much as possible for their immediate advantage. They do not concern themselves about the temporally more remote consequences of their methods of exploitation. Tomorrow does not count for them. The history of lumbering, hunting, and fishing provides plenty of illustrative experience; but many examples can also be found in other branches of soil utilization. (635)

A few pages later, Mises expands on this:

If land is not owned by anybody, although legal formalism may call it public property, it is utilized without any regard to the disadvantages resulting. Those who are in a position to appropriate to themselves the returns—lumber and game of the forests, fish of the water areas, and mineral deposits of the subsoil—do not bother about the later effects of their mode of exploitation. For them the erosion of the soil, the depletion of the exhaustible resources and other impairments of the future utilization are external costs not entering into their calculation of input and output. They cut down the trees without any regard for fresh shoots or reforestation. In hunting and fishing they do not shrink from methods preventing the repopulation of the hunting and fishing grounds. In the early days of human civilization, when soil of a quality not inferior to that of the utilized pieces was still abundant, people did not find any fault with such predatory methods. When their effects appeared in a decrease in the net returns, the ploughman abandoned his farm and moved to another place. It was only when a country was more densely settled and unoccupied first class land was no longer available for appropriation, that people began to consider such predatory methods wasteful. At that time they consolidated the institution of private property in land. They started with arable land and then, step by step, included pastures, forests, and fisheries. The newly settled colonial countries overseas, especially the vast spaces of the United States, whose marvelous agricultural potentialities were almost untouched when the first colonists from Europe arrived, passed through the same stages. (652)

Terry Anderson and P. J. Hill (1975), as well as others in that line, would later show how that “consolidat[ion of] the institution of private property in land” and in other resources could take place through voluntary organizations, without a state.

Ironically, it is the state that often promotes the rapid resource depletion that is so often blamed on the private sector. Elected officials have a time horizon that is truncated by the next election. Even if they could somehow conquer the calculation problem and discover the optimal rate of resource depletion, they would have little incentive to adhere to that with regard to government-owned natural resources. While a profit-seeking firm has an indefinite life and therefore must take into account the present value of a stream of earnings extending indefinitely into the future, the elected official gains little or nothing from resource use that is credited to a successor.

Interest Groups and Environmental Regulation

This brings us to a final problem with the efforts to account for external costs and benefits with government action. Even if the problems of calculation could somehow be resolved, politicians and their attendant bureaucracies tend to act in their own interests, which do not typically induce them to seek an “ideal” quantity of production. Elected officials typically want reelection, and bureaucrats want larger budgets. Mises addresses this problem as well, identifying the deficiencies in property rights law as the result of governments’ vacillating between the promotion of industrial development and the promotion of low-income voters:

The laws concerning liability and indemnification for damages caused were and still are in some respects deficient. By and large the principle is accepted that everybody is liable to damages which his actions have inflicted upon other people. But there were loopholes left which the legislators were slow to fill. In some cases this tardiness was intentional because the imperfections agreed with the plans of the authorities. When in the past in many countries the owners of factories and railroads were not held liable for the damages which the conduct of their enterprises inflicted on the property and health of neighbors, patrons, employees, and other people through smoke, soot, noise, water pollution, and accidents caused by defective or inappropriate equipment, the idea was that one should not undermine the progress of industrialization and the development of transportation facilities. The same doctrines which prompted and still are prompting many governments to encourage investment in factories and railroads through subsidies, tax exemption, tariffs, and cheap credit were at work in the emergence of a legal state of affairs in which the liability of such enterprises was either formally or practically abated. Later again the opposite tendency began to prevail in many countries and the liability of manufacturers and railroads was increased as against that of other citizens and firms. Here again definite political objectives were operative. Legislators wished to protect the poor, the wage earners, and the peasants against the wealthy entrepreneurs and capitalists. (Mises 1998, 651)

Extensions of this idea appeared in the decades after Human Action was published, demonstrating that industries would lobby for regulation not only to escape liability, but also to gain advantages over rivals or potential rivals (see, e.g., Director and Levi 1956; Nelson 1957; Stigler 1971). Bruce Yandle’s “bootleggers and Baptists” framework (e.g., Yandle 1983, 1999) has been useful in describing the coalitions between industries trying to use regulation to suppress rivals and ideologically motivated groups that add a public interest veneer to these regulations. In the mix of interest group politics, the textbook “ideal” outcome—even if it could be known—would be unlikely to emerge.

Conclusion

Though Mises wrote Human Action before statist environmentalism gained the ascendancy it would enjoy in the late twentieth and early twenty-first centuries, its insights are clearly applicable to modern debates over environmental policy. As we have seen, government does not—and cannot—have the information it would need to calculate what level of pollution or resource use is efficient, and government officials lack the incentives to be particularly interested in efficiency anyway.

Mises’s calculation argument would later be supplemented by Murray Rothbard’s observation that modern environmental policy also has an ethical problem. In his classic essay “Law, Property Rights, and Air Pollution,” Rothbard writes, “Even if the concept of social efficiency were meaningful, they don’t answer the questions of why efficiency should be the overriding consideration in establishing legal principles or why externalities should be internalized above all other considerations” (Rothbard 1982, 59). Basing legal decisions on property rights, as Rothbard proposed, instead of on an incoherent utilitarian search for social efficiency would avoid the socialist calculation problem.1 Many in the mainline environmental movement also make the argument that ethics should trump efficiency, but its adherents often fail to recognize the ethicality of private property and markets.

Had environmentalism built on the insights into the power of the market that are contained in Human Action, it might have taken a different turn. A commitment to property rights instead of state ownership and control over natural resources would have generated both better lives for human beings and a reduction of many of the pollution problems and resource use problems that we have seen. Unfortunately, mainline environmentalism has become an avenue for vastly expanding the power of the state, and in terms of environmental quality, it is not clear that the state’s coercive efforts have made things better instead of worse. So on Human Action’s seventy-fifth anniversary, it is appropriate to remember how important Mises’s insights—especially on economic calculation—are in dismantling the myths and misconceptions of today’s environmental policy.

References

Adler, Jonathan H. 2009. “Taking Property Rights Seriously: The Case of Climate Change.” Social Philosophy and Policy 26, no. 2 (July): 296–316. https://doi.org/10.1017/S0265052509090256.

Anderson, Terry L., and P. J. Hill. 1975. “The Evolution of Property Rights: A Study of the American West.” Journal of Law and Economics 18, no. 1 (April): 163–79. https://doi.org/10.1086/466809.

Baumol, William J. 1972. “On Taxation and the Control of Externalities.” American Economic Review 62, no. 3 (June): 307–22. https://www.jstor.org/stable/1803378.

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See, e.g., Brown (2022) and Van Hoesen (2024).

1 As Edward Stringham and Mark White (2005, 381) point out, “Utilitarian theories in general suffer from these calculation problems, but deontological theories, such as rights-based ethical systems, do not. In such theories, legal decisions would be made based on notions of justice rather than efficiency, and judges would not face the unenviable task of calculating the economic consequences, in all possible states of the world, of all their possible actions.” And Jonathan Adler (2009, 311) makes a similar point: “From an FME [free-market environmentalism] perspective there should be a problem with setting global policy priorities through a cost-benefit analysis rather than allowing such priorities to emerge from the spontaneous interactions of individuals and communities through the market process. One of the points of property rights is to preserve the decisional autonomy of property owners, so that they are able to act in accordance with their subjective value preferences.”