Power and Market: Government and the Economy

The first step in analyzing intervention is to contrast the direct effect on the utilities of the participants, with the effect of a free society. When people are free to act, they will always act in a way that they believe will maximize their utility, i.e., will raise them to the highest possible position on their value scale. Their utility ex ante will be maximized, provided we take care to interpret “utility” in an ordinal rather than a cardinal manner. Any action, any exchange that takes place on the free market or more broadly in the free society, occurs because of the expected benefit to each party concerned. If we allow ourselves to use the term “society” to depict the pattern of all individual exchanges, then we may say that the free market “maximizes” social utility, since everyone gains in utility. We must be careful, however, not to hypostatize “society” into a real entity that means something else than an array of all individuals.

Coercive intervention, on the other hand, signifies per se that the individual or individuals coerced would not have done what they are now doing were it not for the intervention. The individual who is coerced into saying or not saying something or into making or not making an exchange with the intervener or with someone else is having his actions changed by a threat of violence. The coerced individual loses in utility as a result of the intervention, for his action has been changed by its impact. Any intervention, whether it be autistic, binary, or triangular, causes the subjects to lose in utility. In autistic and binary intervention, each individual loses in utility; in triangular intervention, at least one, and sometimes both, of the pair of would-be exchangers lose in utility.

Who, in contrast, gains in utility ex ante? Clearly, the intervener; otherwise he would not have intervened. Either he gains in exchangeable goods at the expense of his subject, as in binary intervention, or, as in autistic and triangular intervention, he gains in a sense of well-being from enforcing regulations upon others.

All instances of intervention, then, in contrast to the free market, are cases in which one set of men gains at the expense of other men. In binary intervention, the gains and losses are “tangible” in the form of exchangeable goods and services; in other types of intervention, the gains are nonexchangeable satisfactions, and the loss consists in being coerced into less satisfying types of activity (if not positively painful ones).

Before the development of economic science, people thought of exchange and the market as always benefiting one party at the expense of the other. This was the root of the mercantilist view of the market. Economics has shown that this is a fallacy, for on the market both parties to any exchange benefit. On the market, therefore, there can be no such thing as exploitation. But the thesis of a conflict of interest is true whenever the State or any other agency intervenes on the market. For then the intervener gains only at the expense of subjects who lose in utility. On the market all is harmony. But as soon as intervention appears and is established, conflict is created, for each may participate in a scramble to be a net gainer rather than a net loser—to be part of the invading team, instead of one of the victims.

It has become fashionable to assert that “Conservatives” like John C. Calhoun “anticipated” the Marxian doctrine of class exploitation. But the Marxian doctrine holds, erroneously, that there are “classes” on the free market whose interests clash and conflict. Calhoun’s insight was almost the reverse. Calhoun saw that it was the intervention of the State that in itself created the “classes” and the conflict.5 He particularly perceived this in the case of the binary intervention of taxes. For he saw that the proceeds of taxes are used and spent, and that some people in the community must be net payers of tax funds, while the others are net recipients. Calhoun defined the latter as the “ruling class” of the exploiters, and the former as the “ruled” or exploited, and the distinction is quite a cogent one. Calhoun set forth his analysis brilliantly:

Few, comparatively, as they are, the agents and employees of the government constitute that portion of the community who are the exclusive recipients of the proceeds of the taxes. Whatever amount is taken from the community in the form of taxes, if not lost, goes to them in the shape of expenditures or disbursements. The two—disbursement and taxation—constitute the fiscal action of the government. They are correlatives. What the one takes from the community under the name of taxes is transferred to the portion of the community who are the recipients under that of disbursements. But as the recipients constitute only a portion of the community, it follows, taking the two parts of the fiscal process together, that its action must be unequal between the payers of the taxes and the recipients of their proceeds. Nor can it be otherwise; unless what is collected from each individual in the shape of taxes shall be returned to him in that of disbursements, which would make the process nugatory and absurd. ...

Such being the case, it must necessarily follow that some one portion of the community must pay in taxes more than it receives back in disbursements, while another receives in disbursements more than it pays in taxes. It is, then, manifest, taking the whole process together, that taxes must be, in effect, bounties to that portion of the community which receives more in disbursements than it pays in taxes, while to the other which pays in taxes more than it receives in disbursements they are taxes in reality—burdens instead of bounties. This consequence is unavoidable. It results from the nature of the process, be the taxes ever so equally laid. ...

The necessary result, then, of the unequal fiscal action of the government is to divide the community into two great classes: one consisting of those who, in reality, pay the taxes and, of course, bear exclusively the burden of supporting the government; and the other, of those who are the recipients of their proceeds through disbursements, and who are, in fact, supported by the government; or, in fewer words, to divide it into tax-payers and tax-consumers.

But the effect of this is to place them in antagonistic relations in reference to the fiscal action of the government and the entire course of policy therewith connected. For the greater the taxes and disbursements, the greater the gain of the one and the loss of the other, and vice versa. ...6

“Ruling” and “ruled” apply also to the forms of government intervention, but Calhoun was quite right in focusing on taxes and fiscal policy as the keystone, for it is taxes that supply the resources and payment for the State in performing its myriad other acts of intervention.

All State intervention rests on the binary intervention of taxes at its base; even if the State intervened nowhere else, its taxation would remain. Since the term “social” can be applied only to every single individual concerned, it is clear that, while the free market maximizes social utility, no act of the State can ever increase social utility. Indeed, the picture of the free market is necessarily one of harmony and mutual benefit; the picture of State intervention is one of caste conflict, coercion, and exploitation.

• 5“Castes” would be a better term than “classes” here. Classes are any collection of units with a certain property in common. There is no reason for them to conflict. Does the class of men named Jones necessarily conflict with the class of men named Smith? On the other hand, castes are State-made groups, each with its own set of violence-established privileges and tasks. Castes necessarily conflict because some are instituted to rule over the others.
• 6John C. Calhoun, A Disquisition on Government (New York: Liberal Arts Press, 1953), pp. 16–18. Calhoun, however, did not understand the harmony of interests on the free market.