The Privatization of Roads and Highways

19 Road Privatization: Rejoinder to Mohring

The thought many people will have when first confronted with the notion that roads, highways and streets ought to be privatized is likely that yes, it might be a good idea for the government to contract out to business firms some minor tasks: perhaps salting or bulldozing in snow conditions, maybe cleaning, possibly even pot hole repair or paving. Suppose they were convinced that the advocate of such an initiative meant, not merely contracting out a few such functions, but radically privatizing: allowing private enterprise to conduct, not some, but all functions related to vehicular traffic; that is, turning over responsibility for vehicular traffic entirely to the marketplace; allowing entrepreneurs to assemble the land upon which new thoroughfares were to be built; to manage and charge from them and, gulp!, earn profits thereby. Then, presumably the reaction of most people would be to question the very sanity of anyone making such an outlandish proposal.

There is a wealth of literature attesting to the fact that, historically, many of the first roads were privately built turnpikes; so that there is no reason, at least in principle, why such should not be the case even in modern times. Many of these studies underline the claim that roads provided by the government kill thousands of people per year; that these deaths are attributable, not to factors such as speeding, weather conditions, driving while intoxicated, vehicle malfunction or driver error, which are not under the control of the bureaucrats charged with running the roads, but rather to the lack of managerial skill in so doing.

Then there is the issue of traffic congestion: it is bad, and it is getting worse. The average motorist1 spent 26 more hours per year in bumper-to-bumper traffic in 2000 than he did in 1990. Things have come to such a pass that the word “gridlock” has now entered our vocabulary. And this, too, stems not from any intrinsic source, but from statist mismanagement of our roadway system. For one thing, prices are rarely charged for road usage; but congestion is no more than an excess of demand over supply. At a zero price, it is no surprise that shortages should erupt. For another, on the rare occasions that prices are charged, they are not market clearing, peak-load prices, which would tend to iron out rush hour demands. On the contrary, commuters,2 who aggravate the peaks and troughs, are charged less than other motorists with more flexible schedules.3

The present chapter, however, is not directly concerned with congestion and traffic deaths as being part of the case for privatization of traffic conduits. They are mentioned only by way of introduction. Our present burden is to overcome difficulties in privatizing roads, by dealing with objections and transition problems.

OBJECTIONS

SIMILARITY?

The main objection to highway privatization we will consider is articulated in “Congested Roads” by Herbert Mohring. This article is a frontal attack on the idea of road privatization. This is somewhat more than passing curious, in that Mohring begins with an avowal that there is no real intrinsic difference between road transportation and pretty much anything else:

Economists’ basic theories of price and value—the tools they use to determine the optimal input combinations and output levels for a dam, a steel mill, or an orange grove, or to place a value on any of them—can, without fundamental alteration, provide the same services for transportation activities.4

And again:

If the standard tools of microeconomics can be used to understand the supply and demand for transport, then might it not be possible to rely on market processes—the method on which we rely to provide most commodities—to provide transport services?5

Even in terms of congestion, he analogizes road services along the lines of that provided by the department store and the cinema:

The wait for service in a department store is typically substantially longer during the week before Christmas than in late January. As for quality of product, as the number of people attending a movie performance increases, the odds of finding a seat with an unencumbered view of the screen diminishes. And, of course, in driving on urban roads, more congestion means more time consuming and, for most, less pleasant trips.6

However, despite what this author can only see as superficial resemblances, roads are very different for him than practically all other products; in his view, the latter can be provided by the private market place for a profit, while the former cannot. One reason for this is the following:

Neither widget buyers nor widget7 sellers ever see the backward-bending part of the AVC curve . . . because the difference between SRMC and AVC8 is built into the price they pay. Not so for road users: in deciding whether and when to make trips, most travelers take into account the costs congestion imposes on them. Few worry about the costs their trips impose on others by slowing them down. The unrecognized external cost or “externality” of travel some times forces road users into the backward-bending part of AVC.9

MARKET FAILURE

This is par for the course for traditional neoclassical economic analysis, according to which there are all sorts of “market failures” out there, and “externalities” are one such. In contrast, from the Austrian economic perspective10 from which the present author writes, there is no such thing as market failure, and “externalities”11 of the sort mentioned by Mohring are but an example of illogical analysis.

The main reason, in this case, that Mohring’s charge against free enterprise fails is that there simply is no “externality.” Rather, there is an “internality,” which he does not recognize as such. Road users, under present, socialistic,12 institutional arrangements, need not take into account the extra waiting time they impose on other motorists because they are not charged a price that incorporates this imposition. Rather, the price they face is precisely the same whether at peak-load highway use times (e.g., rush hours) or at any other time of the day. Typically, this price is zero. In the case of positive prices, as for some limited-access highways, tunnels and bridges, it still does not vary at all in response to congestion.13

In fact, Mohring contradicts himself on this issue. Remember, he is saying that there is something unique about road services, compared to all other goods, e.g., “widgets,” such that the former is somehow guilty of this market failure of externalities, wherein motorists do not take into account the time costs they impose on others of their ilk, while this malfunction, somehow, does not take place in the latter case. But he is also on record as stating: “The wait for service in a department store is typically substantially longer during the week before Christmas than in late January.”14 Why is this? That is, why is it that the market failure of externalities, wherein buyers do not consider the time costs of others, does not afflict, also, department store customers? The reason is simple. Department stores are privately owned.15 Thus, there is economic incentive for their proprietors to act rationally, lest they suffer losses and be forced into bankruptcy. By Mohring’s own admission, they do so; e.g., they charge higher prices “during the week before Christmas than in late January.” Thus, December shoppers are lead by Smith’s “invisible hand”16 to take into account the wishes of other customers, and to not impose, or at least to reduce the imposition they make on their scarce and valuable time.

In sum, there is no intrinsic difference in this regard between highway or street transit, and any other good (widget). If either is in the hands of private enterprise, pricing will gravitate toward a situation in which the customer’s time, as well as money, is taken into account. In contrast, if either is in the hands of government, pricing will not gravitate toward a situation in which the customer’s time, as well as money, is taken into account. Then, truly, there will be a “failure.” But it will be a government failure, not a market failure.17

PRICING

Next, Mohring launches into a defense of the case for pricing of road services. He unfortunately relies upon “a benevolent highway authority” as the linchpin of his analysis.18 But if the Public Choice school19 of thought has taught us anything, this is an unlikely scenario at best. He predicates his analysis, too, on the basis of sufficient information, without asking whether markets or statist bureaucracies are most likely to generate the requisite knowledge. Yet, if we have learned anything from the disarray of the Soviet experiment, it is that central planners cannot rely on anything like accurate assessments of economic reality.20 In contrast, entrepreneurs sink or swim on the quality of the information they can generate. The market, weeding-out process ensures that those with better knowledge, ceteris paribus, will continually out perform and eventually bankrupt those with inferior data, thus tending to continually improve matters in this regard. Needless to say, this is a phenomenon lacking in governmental operation.

There is no question but that governmental pricing of highway services would be more efficient than its present policy of not charging at all. Certainly, pricing would do wonders in terms of alleviating traffic congestion. However, for the advocate of road privatization, this constitutes something of a vexing issue. Given that governmental ownership is an unmitigated evil, is it a step in the right direction, or in the wrong one, to render this evil more efficient, through pricing, in this case? Certainly, no advocate of the freedom philosophy could advocate a more efficiently run, Nazi concentration camp, e.g., one which would kill more innocent people per dollar spent. True, government managed roads are scarcely equivalent to a concentration camp. On the other hand, statist roads do constitute rather more than just a bit of a charnel house. Given that some 40,000 people perish on our nation’s highways each year, how much of this is attributable to government ownership? This is very difficult to discern.

GOVERNMENT RESPONSIBILITY?

Gabriel Roth states as follows:

Statistics compiled by the International Bridge, Tunnel and Turnpike Association (IBTTA) show the accident rate on roads operated by its members to be 0.6 deaths per 100 million vehicle-miles, compared to 0.9 deaths per 100 million vehicle-miles on the US interstate system, one of the safest non-commercial road systems in the world.21

Were we to extrapolate from this figure, we would conclude that privatization would reduce traffic fatalities from roughly 42,000 per year to two thirds of that, or to 28,000, a reduction of 14,000. In this calculation, we ascribe to government ownership one third of all such deaths, or those 14,000 per year. These are not Nazi type statistics, but they are far from insignificant.22 However, Roth adds the following to his letter: “Note that the IBTTA roads are toll roads, not necessarily privately-owned. Thus, attributing to government ownership one third of the death toll is an underestimate.”

Perhaps a better way to approximate government culpability in this regard is to utilize the “two to one” rule. That is, there is a plethora of evidence attesting to the fact that private enterprise is twice as efficient as its statist counterpart in providing services such as garbage collection, fire protection, postal delivery, etc.,e.g., private sanitation could remove two times more garbage per dollar spent as its public counterpart.23 If we use this insight as the basis of our calculation for roadway deaths, then we can infer that, under privatization, only one half as many people need die, that is, 20,000, and the other half, or 20,000 would be saved. It is the latter figure, not merely 14,000, who are slaughtered due to governmental negligence in this calculation.

But this “two to one” literature underestimates the efficiency of private over public enterprise in two distinct ways; one, it does not take fully into account that the services are often merely “contracted out” by the government to the so called “private” enterprises. That is, these business firms are not at all stand alone members in good standing of the market. Rather, they have won government-rigged contracts, with all the inefficiency implied therein. Suppose, when this phenomenon becomes incorporated into the analysis, that the rule shifts from “two to one” to “three to one.” If so, than the pure market is not twice as efficient as the state, but thrice. If so, then the death toll per annum of 40,000 would decline not to 20,000, but rather to 10,000, with a saving of 30,000 lives. But even this figure is likely to be an underestimate of the true enormity of public ownership and management of highways, in that this literature, also, only imperfectly takes into account quality of service. Posit, then, that when we fully incorporate this phenomenon into our calculations, that the proper rule of thumb would be that markets are four times more efficient than bureaucrats. Then, the number of people slaughtered on our roads would be 8,000 per year, with a savings of 32,000 lives.24

If so, this casts doubt on the goal of promoting greater governmental efficiency on the roadways, even under the assumption that our only goal was the utilitarian one of reducing fatalities. Yes, if they began peak-load pricing and engaging in other quasi-market activities, there might be a marginal decrease in the death toll. But this would inevitably come at the cost of putting off the day of complete privatization. There is no such thing as a “social” rate of time preference, on the basis of which we could unambiguously compare the present discounted value of a small number of lives saved, in the short run, with a more efficient government enterprise, versus a larger number of people safeguarded, later, under full privatization, so any exact calculation must remain speculative. However, this at least constitutes a reasonable argument against blithely assuming that the goal of social policy must necessarily be to marginally improve state highway operation.

There is also, in addition to utilitarian concerns, a matter of simple justice. Government simply has no business nationalizing an industry that for many years was run under private auspices. This smacks of the nationalization practices of the late and unlamented “evil empire” of the Soviet Union. To add insult to injury, the state manages highways on a coercive basis. With its compulsory tax levies on gasoline, it forces people to pay for road usage, whether they wish to do so or not. With its eminent domain powers, it seizes private property from their rightful owners.

EMINENT DOMAIN

Mohring states: “Assembling rights of way for . . . roads would be prohibitively expensive unless the state could be induced to use its powers of eminent domain on their behalf.”25 There are several difficulties with this position. First of all, the state need not be “induced” to do any such thing. Rather, this is the very essence of government, to seize that which does not belong to it. The history of the state is the history of such theft.26

Second, this bespeaks a level of economic unsophistication that is rather surprising, emanating as it does from a professor in that field. For, surely the true costs are higher, far higher, when government seizes property than when it purchases it; the costs are only hidden in the former case. Let us suppose that a given man would sell his land only for $100,000. The government comes along and expropriates it, giving him $10,000 for him, the figure that the bureaucrats compute as “fair market value.” Mohring, the “cost” of this land is only the $10,000 in out of pocket expenses for the state. But the true cost, the alternative cost, is the much higher figure of $100,000.

But what of the possible objection that this property owner “really” values his holdings at, say, $50,000, and is “jacking up” his price since someone wants to buy it for a road, and he can act the part of the “holdout?” Even if this is true, Mohring’s calculations are still amiss, albeit by not as much. In this scenario, Mohring still counts the costs of this part of the road assemblage at $10,000, whereas, by stipulation, the true figure is five times that (not tenfold, as it was in the previous scenario). This is still a whopping underestimate. But there is a more serious rejoinder to this objection: such figures are necessarily hidden from outside observers. The only person privy to these costs is the property owner himself. The government, Mohring, the present author, none of us knows the alternative or opportunity cost of this land apart from its owner. All of these numbers are made up, suitable for illustration purposes only. There is no warrant for saying that the property owner is acting the part of the “holdout.” All we outside observers know, all we can ever know, is that he demands, say, $100,000 for his land at the present point in time. We cannot know any such thing as that he would really sell his land for $50,000, or $10,000, or any other such figure, and is only “jacking up” his price to “unrealistic” levels in order to “take advantage” of the desperation on the demand side.

PERFECT COMPETITION

The next difficulty in which Mohring enmeshes himself is that he maintains that roads cannot be privatized because they do not meet the very stringent and irrelevant conditions of so called “perfect” competition: “Expressways are so large and have so much capacity that, in selling their services, private owners would not be subject to the sorts of market pressures that firms experience in the competitive markets of economic texts.”27

And again:

In the markets that populate economics texts, Adam Smith’s invisible hand maximizes social benefits without government intervention. Would the many virtues of emulating textbook-competitive markets in pricing and developing roads make it desirable to turn over the duties of the Federal Highway Administration and state departments of transportation to free enterprise? Sadly [sic] to say, before such a step becomes optimal, problems must be solved that result from differences between the technology of roads and that which justifies laissez faire in dealing with the firms that populate textbook competitive markets.28

There is so much wrong with this contention it is difficult to know where to start in refuting it. Beginning with a reductio ad absurdum might not be a bad way to address this claim. “Perfect competition” requires, among other things, completely homogeneous goods or services, thousands (or millions, depending upon which neoclassical economist is holding forth) of buyers and sellers, total complete and full information about every aspect of the good on all sides, no transactions costs, zero profits, equilibrium, etc. To say that no real world industry can meet these stringent conditions is a vast understatement. But that is just the point. If Mohring were to implement his requirement, there would be, there could be, no private industries at all. Every last economic activity known to man would either be owned and run by the government (e.g., the Soviet system) or “owned” privately29 but managed or controlled by it (e.g., the fascist system).

The point is, “perfect competition” is a totally made up scenario, having nothing whatsoever to do with the real world; it is used by mainstream economists such as Mohring as a stick with which to beat up on real life business firms. Perfect competition functions in economics as would the ravings of a madman in criminology who insisted he would kill (or at least consider illegitimate) all people who were not eight feet tall and did not weigh less than one hundred pounds.

In contrast to this ersatz concept is the Austrian concept of real competition, rivalrous competition. Here, it is not necessary that everyone be all-knowing, nor that all products be homogeneous,30 that there be an indefinitely large numbers of buyers and sellers such that none of them can have any effect on price,31 etc. All that is required is that there be no laws criminalizing entry into an industry. Then, there can be rivalrous competition. The Austrian is no “nose counter.” Mere large numbers, or their absence, neither ensure nor preclude competition in this sense. Microsoft is not a monopoly,32 nor was IBM before it, despite each of them accounting for a large share of the computer market in their respective eras. This is because entry is legal; anyone can start up a computer business whenever he wishes to do so. Nor does anything like competition prevail in the taxi industry, despite the fact that, in any given large city, there are literally tens of thousands of firms in this industry. This is because entry is precluded by law.

Nor can we acquiesce in the notion that mere technological considerations can “justify laissez-faire” or fail to do so. To agree with this premise is to ignore the normative-positive distinction. The only consideration that can justify laissez-faire or fail to do so are those pertaining to rights, or ontology.

CENTRAL PLANNING

Above, when we discussed Mohring’s views on eminent domain, we had occasion to remark upon his surprising unsophistication, for an economist, on this issue. This might be due to the fact that despite his graduate degree and his professional affiliations, he is more of a “transportation planner”33 than he is dismal scientist. His article bespeaks almost ignorance of even the possibility that the highway industry might be privatized. He looks at the issue of roadway provision solely as a transportation planner, equivalent to the manner in which a Soviet central planner viewed the entire economy.

This author spends much time and effort in this regard. One of his conclusions is that:

As figure 1 suggests, the direct effect of congestion on tolls would have made the average road user worse off. Almost all would have paid more for the trips they continued to take and would no longer have taken some trips that formerly yielded net benefits. While all travelers would have benefited from faster trips, toll payments would have exceeded the value of these time savings for most. Only two small groups would have reaped net benefits from congestion pricing regardless of the uses to which revenues were put. There were then-current mass-transit users and very high-income auto travelers. Tolling would have induced some travelers to divert from auto to bus. . . . On the most congested roads, for auto users with incomes greater than about $80,000 a year, travel-time savings would have exceeded their toll costs. On less congested roads, only travelers with incomes well into the six-figure range would have had net benefits.34

The clear implication of this is that it would be unwise, inefficient, and counterproductive to charge a price for road use.35 But let us take a moment for common sense to prevail. If private owners would, on this account, be legally prohibited from charging a price for use of their property, this would just about spell the death knell for any privatization efforts. For all practical purposes, we would be stuck with present institutional arrangements, which, in addition to featuring bumper-to-bumper traffic, also constitute carnage for motorists. Another difficulty with Mohring’s analytic framework is that it “proves” far too much. If it is improper for street and highway owners to charge prices, and if department stores36 resemble roadways in terms of congestion and peak-load demands for their services, by Mohring’s own admission, then the logical implication is that these amenities should not engage in pricing either.37 But more: all, or at least virtually all, goods and services are cyclical in this regard. That is, no one buys much of anything, typically, on any weekday between 2:00 a.m. and 5:00 a.m., or on Christmas day. Congestion prices, then, would be improper for just about anything, under this line of “reasoning.” But there is only one institution that need not charge prices for its wares, since it can finance them through compulsion (e.g., taxation), and that, of course, is government. Mohring’s analysis, then, if it “suggests” anything, leads right back to the Sovietization of (virtually) the entire economy, something the civilized world has been attempting to escape from lo these many years, and something, since at least the fall of the “evil empire” in 1989, one would have thought all scholars would eschew. Not so, it would appear, for Mohring.

SOME PROBLEMS?

Mohring concludes with a litany of problems that undermine the case for road privatization. He starts off, once again, on a fallacious foot:

The increasing congestion that accompanies increasing travel on a given road is the transportation counterpart to the increasing short-run marginal cost of widgets that accompanies increasing output from a given widget factory. Both increases result from more intensive use of durable capital equipment—the law of diminishing returns at work.38

Nothing could be further from the truth. Increasing marginal costs simply have nothing whatsoever to do with congestion. The former is entirely a phenomenon of diminishing returns to a fixed factor; the latter stems from variable demand and/or prices pegged below equilibrium levels. In the case of roadways, the prices are set by government exceedingly below that which would prevail in the evenly rotating economy of free enterprise; in fact, they are zero! It is no wonder at all that at such low, nay, non-existent prices, demand should upon more than one occasion outstrip supply.

Again Mohring repeats his misleading notion that “travelers usually take into account the congestion they will encounter but not the congestion they will cause.”39 This is true, but only in the absence of market prices, which, in the words of Adam Smith, lead motorists “as if by an invisible hand” to take the latter phenomenon into account.

What are the specific difficulties that Mohring sees with road privatization? They are as follows:

1. Indivisibilities and economies of scale.

It cannot be denied that there are indeed indivisibilities and economies of scale with regard to road provision. But the same applies to the manufacture and supply of virtually all other goods and services, apart, of course, from those that satisfy the very strict requirements of perfect competition, a null set. In other words, indivisibilities and economies of scale serve not only as an insuperable barrier, for Mohring, for road privatization, but, also, if he is logically consistent, which he is not, for everything else under the sun as well.

States our author: “Unregulated road entrepreneurs could not generally be relied on to set marginal cost prices.”40 The obvious rejoinder to this is that neither could anyone else be relied upon to do this either (apart from imaginary firms in the never-never land of perfect competition).

Inadvertently, perhaps, Mohring provides evidence for the fact that private-enterprise road operation is very robust. He states:

the California Private Transportation Company (CPTC) built an expressway in the median strip of heavily traveled State Route 91 (SR 91) which connects Orange and Riverside Counties in Southern California. Fearing monopolistic excesses, the California Department of Transportation (CalTrans) attached strings to the right to build SR 91. It required lower—initially zero—tolls for vehicles with more than two passengers and limited the rate of return that CPTC may earn.41

The fact that a private enterprise, CPTC in this case, could even contemplate remaining in business under these very onerous conditions is ample testimony to its ability. At the best of times, it is difficult for entrepreneurs to compete with government; for the latter can give away their product for free, and finance their losses out of tax revenues, while this option is not open to the former. Can you imagine if there were government restaurants where meals could be had for free, and still private providers were able to turn a profit? Surely this would constitute strong evidence for the viability of the one, and the absence of such for the other.

Another difficulty with Mohring’s presentation is that he supports the notion that CalTrans “feared monopolistic excesses.” What is this other than the pot calling the kettle black, when the former, but not the latter, is of that color? If there is any “monopoly” in this scenario, it is surely CalTrans, not CPTC. It is CalTrans, not CPTC, that can endure in business even if rejected, totally, by consumers. It is CalTrans, not CPTC, that can force travelers to finance it through taxation. It is CalTrans, not CPTC, that is prevented from bankruptcy, no matter how poor a job they do. It is CalTrans, not CPTC, that can manage its roads so that people die like flies on their premises, without any necessary financial repercussions. If there is any “monopoly” of the piece, surely it is CalTrans, not CPTC.

2. Acquiring rights of way for private roads

States Mohring: “if road entrepreneurs are to obtain rights of way at less than overwhelming costs, action by the state is essential.”42

However, we have already seen that eminent domain is not so much cheaper than private action in assembling a land package as it is better at camouflaging costs. When the government commandeers a right of way at an artificially low price, the true cost is not limited to this out of pocket expense, but rather includes, also, the alternative or opportunity cost suffered by the owner, which is an intrinsically subjective matter.

3. Sufficient toll revenues

Mohring asks: “How can we tell whether toll revenues would be great enough to justify publicly or privately financed road expansion?”43

One might be excused for thinking that, for him, the question as to whether a good or service can be provided by markets depends upon its costs. But here we would run into a problem: if the costs are greater than the benefits,44 does that mean that the state or private enterprise should undertake them? “Neither” would appear to be the proper answer, but there does not seem to be room for his answer in his lexicon. Alternatively, suppose that the benefits are greater than the costs. Again, we are like a ship without a rudder in terms of determining whether this means that the good in question should be nationalized by government or produced by profit-making firms.

If revenues are not great enough to exceed costs, then the issue is not whether governments or markets should be assigned to produce the good or service in question. Rather, from the perspective of promoting consumer welfare, no one should do so. Let us take a real world example of a case where costs always exceed revenues: rat burgers, mud pies, and dirty water. Here, the costs of putting together a factory to produce these items, hiring the necessary labor, conducting sufficient advertising, will always exceed the revenues there from, since there will be no customers for them at any positive price. Should the state then supply them? To ask this is to answer it.

4. Equity and pricing

Mohring announces himself as having “long supported marketable peak period road scholarships for the poor” on grounds of equity,45 since he thinks that overall “congestion pricing would, indeed, be regressive.”46 But bread and movies, too, are regressive. Surely, the poor spend a higher proportion of their income on these items than the rich. The clear implication, here, is either that no charges should be made for these items, e.g., everyone should get all the bread and movies he needs “for free,” or, if there is to be pricing for them, then the poor should receive a subsidy to help them with these purchases.

But the bread and movies enjoyed by the impoverished in a relatively free47 country such as the U.S. are the envy, not only of those in the lower deciles of the income distribution in most other nations, but even of their middle classes. Thus, the implication is that if you want to help the poor, the best way to accomplish this task is not to undermine the capitalist system with government subsidies, but rather to rely on free enterprise to help the poor, as it has always and everywhere done.

On similar grounds, when tariffs are reduced as a step toward an economically freer society, it is incompatible with this initiative to award funds for retraining superfluous employees no longer working in their fields of comparative advantage, or to give out businesses subsidies. Investment, whether in physical or human capital, brings rewards in its train when done correctly, e.g., in the interests of the consumers. When there is misallocation of either of these types of resources, the free-market ethic implies that those responsible bear the costs, and not be able to shift them onto the general public through extra taxes and subsidies or “scholarships.”

These subsidies or “scholarships” have to come from somewhere; presumably, they will be based on coercive tax levies. Mohring is on record as castigating “robber barons,” the railroad owners who benefited from nineteenth century eminent domain powers.48 But in advocating subsidies or “scholarships” for the poor who will have to pay more for road usage under pricing, he himself is taking on the role of “robber baron.”

______________________

49See http://www.tripnet.org/CensusDataCongestionJun2002.PDF.

50Typically, for bridges and tunnels, lower prices are charged upon purchase of a monthly ticket of about twenty-two trips. But who is more likely to make so many trips into the center of the city each month? Obviously, commuters. Thus, the counter-peak load pricing engaged in by the apparatus of the state exacerbates the problem instead of alleviating it.

51Nor must we forget the fact that this Sovietization of our transport system which leads to traffic congestion also promotes “road rage,” another new addition to our lexicon, and thus also raises traffic fatalities.

52Herbert Mohring, “Congested Roads: An Economic Analysis with Twin Cities’ Illustrations,” in Gabriel Roth, ed., Street Smart: Competition, Entrepreneurship and the future of Roads (New Brunswick, N.J.: Transactions Publishers, 2006), p. 142.

53Ibid.

54Ibid., p. 143.

55This is Mohring’s word for pretty much all goods other than road services.

56These curves are depicted in Mohring’s figure 1, which is marred by the fact that the AVC and the SRMC do not cross at the bottom point of the former.

57Mohring, “Congested Roads,” p. 145.

58Murray N. Rothbard, “The Present State of Austrian Economics,” Working Paper from the Ludwig von Mises Institute (November). Reprinted in The Logic of Action One: Method, Money, and the Austrian School (Cheltenham, U.K.: Edward Elgar Publishing, 1997), pp. 111–72; reprinted in Journal des Economistes et des Etudes Humaines 6, no. 1 (March 1995): 43–89; idem, “Toward a Reconstruction of Utility and Welfare Economics,” in The Logic of Action: Method, Money and the Austrian School I; Ludwig von Mises, Human Action, 3rd ed. (Chicago: Regnery, 1966).

59Technically speaking, “externalities” are costs (or benefits, which we herein ignore) to third parties based on trades in the market. These fall into two categories: physical, on the one hand, and nonphysical or pecuniary, on the other. For the Austrian, a physical negative externality such as smoke pollution is no such thing; rather, it is a trespass of wayward smoke particles onto the lungs, lawns and other property of third parties. The reason this occurs has nothing to do with “market failure.” Rather, it is the failure of government to uphold private property rights. As to the nonphysical or pecuniary, such as where A opens up a store across the street from B and competes away from him some of the latter’s customers, this, too, is not a market “failure” but rather a paradigm case of the workings of free market and competition.

60Walter Block, “Road Socialism.” International Journal of Value-Based Management 9 (1996): 195–207.

61Indeed, as we have seen (text accompanying footnote 2, above), there is a pricing perversity, insofar as people who utilize roadways during high demand times actually pay less; thus, they are encouraged by the government, not at all by the market, to ignore the time costs they impose on others.

62Mohring, “Congested Roads,” p. 146.

63At least on this side of the G.U.M. stores of the late and non-lamented U.S.S.R.

64Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations (New York: Modern Library, [1776] 1965).

65In Mohring’s treatment of the equilibration between arterial roads and expressways (p. 146), he speaks of the motorists of each “imposing costs” (illustrated in his figure 2). This is the same fallacy, under different guise. There is no more of an “externality” in that case than in the present one under consideration. Both stem from incomplete privatization of what could be fully private property in a free society.

66Ibid.

67Charles W. Baird, “James Buchanan and the Austrians: The Common Ground,” Cato Journal 9, no. 1 (Spring/Summer, 1989): 201–30; James D. Gwartney Richard E. Wagner, eds., Public Choice and Constitutional Economics (London: JAI Press, 1988); James M. Buchanan, “Public Choice and Public Finance,” What Should Economists Do? (Indianapolis: Liberty Press, 1979); James M. Buchanan and Gordon Tullock, The Calculus of Consent: Logical Foundations of Constitutional Democracy (Ann Arbor: University of Michigan, 1971). For a critique of Public Choice, although not on these grounds, see Walter Block and Thomas J. DiLorenzo, “Is Voluntary Government Possible? A Critique of Constitutional Economics,” journal of Institutional and Theoretical Economics 156, no. 4 (December 2001): 567–82; idem, “The Calculus of Consent Revisited,” Public Finance and Management 1, no. 3 (2001): 37–56; Murray N. Rothbard, “Public Choice: A Misshapen Tool,” Liberty (1989): 20–21; idem, “Buchanan and Tullock’s The Calculus of Consent,” in The Logic of Action Two: Applications and Criticism from the Austrian School (Cheltenham, U.K.: Edward Elgar Publishing, 1997), pp. 269–74.

68Ludwig von Mises, Socialism (Indianapolis, Ind.: LibertyPress/Liberty/Classics, 1981); Hans-Hermann Hoppe, A Theory of Socialism and Capitalism: Economics, Politics and Ethics (Boston: Dordrecht, 1989); Peter J. Boettke, Why Perestroika Failed: The Politics and Economics of Socialist Transformation (New York: Routledge, 1993); Hans-Hermann Hoppe, “Socialism: A Property or Knowledge Problem?” Review of Austrian Economics 9, no. 1 (1996): 147–54.

69Private communication with the author in December of 2002.

70To put this in context, fewer than 3,000 people were murdered in the World Trade Center tragedy of 9/11/01.

71See on this Roger Ahlbrandt, “Efficiency in the Provision of Fire Services,” Public Choice 16 (Fall 1973): 1–15; James T. Bennett and Manuel H. Johnson, “Tax Reduction Without Sacrifice: Private Sector Production of Public Services,” Public Finance Quarterly 8, no. 4 (October 1980): 363–96; Roger D. Blair, Paul B. Ginsberg and Ronald J. Vogel, “Blue Cross-Blue Shield Administration Costs: A Study of Non-Profit Health Insurers.” Economic Inquiry 13 (June 1975): 237–51; Thomas E. Borcherding, Budgets and Bureaucrats: The Sources of Government Growth (Durham, NC: Duke University Press, 1977); Kenneth W. Clarkson, “Some Implications of Property Rights in Hospital Management,” journal of Law & Economics 15, no. 2 (October 1972): 363–84; W. Mark Crain and Asghar Zardkoohi, “A Test of the Property Rights Theory of the Firm: Water Utilities in the United States,” Journal of Law & Economics 21, no. 2 (October 1978): 395–08; David G. Davies, “The Efficiency of Public Versus Private Firms: The Case of Australia’s Two Airlines,” Journal of Law & Economics 14, no. 1 (April 1971): 149–65; ibid., “Property Rights and Economic Efficiency—The Australian Airlines Revisited,” Journal of Law & Economics 20, no. 1 (April 1977): 223–26; H.E. Frech, “The Property Rights Theory of the Firm: Empirical Results from a Natural Experiment,” Journal of Political Economy 84, no. 1 (February 1976): 143–52; Cottom M. Lindsay, “A Theory of Government Enterprise.” Journal of Political Economy 84 (October 1976): 1061–77. I owe these citations to Randy Holcombe.

72Even this is likely to be a vast underestimate, and for two reasons. First, it does not take cognizance of the fact that, in many cases, these so-called “private” workers are unionized. In the fully free society, there would be no institutions of this sort. See Walter Block, “Labor Relations, Unions and Collective Bargaining: A Political Economic Analysis,” Journal of Social Political and Economic Studies 16, no. 4 (Winter 1991): 477–507.

Second, was the Soviet Union even fully one fourth as efficient as the American (this is the implication of the analysis in the text, if we assume that that the former had zero privatization, and the latter 100 percent, an obvious overestimate)? Paul A. Samuelson (Economics, 5th ed. [New York: McGraw Hill, 1961], p. 830), depicts a convergence between the economies of the U.S. and the U.S.S.R. He claims (Economics, 12th ed. [New York: McGraw Hill, 1985], p. 837) that between 1928 and 1983, the growth rate for the Soviet Union was a remarkable 4.9 percent per year, higher than that for the U.S. Mark Skousen (The Making of Modern Economics [New York: M.E. Sharpe, 2001], p. 416; and “The Perseverance of Paul Samuelson’s Economics,” Journal of Economic Perspectives 11, no. 2 [Spring 1997]: 137–52) properly debunks these outrageous claims. There are recalls for all sorts of things: toasters, cars, tires: why none for Nobel Prize winning economists such as Samuelson, who has mislead an entire generation of economics students?

73Mohring, “Congested Roads,” p. 147

74Is this too harsh a characterization of eminent domain? Not really. Stripped of its legal imprimatur, there is no real difference between compelling a person to “sell” his land at a price he is unwilling to accept, on the one hand, and outright theft on the other. Suppose a criminal holds me up at gunpoint, demanding my wallet. As I comply with his wish, I object, on the ground that he is stealing from me. A philosophical robber, he is willing to bandy words with me. “Theft,” he says, “not a bit of it. Don’t ever say I’m stealing from you. On the contrary, I offer you the following ‘payment’ for your wallet.” Whereupon he hands me a paper clip, or a rubber band, or a piece of tissue paper or a blob of used bubble gum. When he does so, he converts what would otherwise constitute an outright theft into a forced trade, or eminent domain. (In Canada, this act is more accurately called “expropriation.”) Yet, is there any real difference as far as I am concerned in the two scenarios, one where he steals my wallet, outright, and the other where he gives me something worth less to me than my possession? There is not.

75Mohring, “Congested Roads,” p. 147.

76Ibid., p. 158.

77I.e., in name only.

78Actually, this amounts to a demand that there be only one product. If there are more than this amount, then, necessarily, they cannot all be homogeneous. But if so, then perfect competition is, to that extent, vitiated, since there must of necessity be a dilution in the number of buyers and sellers of it.

79This requirement too, is illogical in that it violates the rules of mathematics. It is impossible that no one buyer or seller has exactly zero effect on price, and yet all of them, together, do. A million times zero is still zero, despite the best efforts of mainstream economists to defend the opposite conclusion.

80William Anderson, Walter Block, Thomas J. DiLorenzo, Ilana Mercer, Leon Snyman, and Christopher Westley, “The Microsoft Corporation in Collision with Antitrust Law,” Journal of Social, Political and Economic Studies 26, no. 1 (Winter, 2001): 287–302.

81Mohring, “Congested Roads,” p. 148; he speaks of his “transportation-planning computer programs” (p. 11).

82Mohring, “Congested Roads,” p. 154.

83If this were really true, private enterprise would give away these services for free, as loss leaders or as part of a larger package, in much the same way as Disneyland gives “free” use of its thoroughfares to pedestrians, as malls do the same for shoppers in its internal streets, and indeed, for its outer streets and often, parking spaces.

84Other businesses earmarked by great cyclicality include movie theaters, restaurants, football (Super Bowls), baseball (the World Series), hotels, air transport, cruise ships, etc.

85Mohring, “Congested Roads,” p. 143.

86Ibid., p. 157.

87Ibid.

88Ibid., p. 159

89Ibid., p. 162.

90Ibid.

91Ibid., p. 163.

92We stipulate that these can be meaningful terms despite their inherent subjectivity. See on this William Barnett II, “Subjective Cost Revisited,” Review of Austrian Economics 3 (1989): 137–78; James M. Buchanan and G.F. Thirlby, L.S.E. Essays on Cost (New York: New York University Press, 1981); James M. Buchanan, Cost and Choice: An Inquiry into Economic Theory (Chicago: Markham, 1969); Thomas J. DiLorenzo, “The Subjectivist Roots of James Buchanan’s Economics,” Review of Austrian Economics 4 (1990): 180–95; Mises, Human Action; Murray N. Rothbard, Man, Economy, and State, 2 vols. (Auburn, Ala.: Ludwig von Mises Institute, 1993); idem, “Buchanan and Tullock’s The Calculus of Consent.”

93Mohring, “Congested Roads,” p. 165.

94Ibid., p. 164.

95James Gwartney, Robert Lawson, and Walter Block, Economic Freedom of the World, 1975–1995 (Vancouver, B.C.: Fraser Institute, 1996).

96Mohring, “Congested Roads,” p. 162.

• 1The number of people who were victims of motor vehicle accidents in 1976, in Accident Facts (Chicago: National Safety Council, 1977), p. 13.
• 2The number of road and highway deaths in the decade, 1967–1976, in ibid.
• 3Data for 1968, in ibid., p. 57.
• 4Data for 1969, in ibid., p. 60.
• 5Data for 1969, in ibid.
• 6Statement by Charles M. Noble, distinguished traffic engineer who served as director of the Ohio Department of Highways, chief engineer of the New Jersey Turnpike, and was recipient of the Matson Memorial Award for Outstanding Contributions to the Advancement of Traffic Engineering. Charles M. Noble, “Highway Design and Construction Related to Traffic Operations and Safety,” Traffic Quarterly (November 1971): 534; emphasis added.
• 7Accident Facts, p. 13.
• 8Sam Peltzman, Regulation and Automobile Safety (Washington, D.C.: American Enterprise Institute for Public Policy Research, 1975), pp. 8–9.
• 9David M. Winch, The Economics of Highway Planning (Toronto: University of Toronto Press, 1963), p. 87.
• 10Strictly speaking, this is far from the truth. Before the nineteenth century, most roads and bridges in England and the U.S. were built by quasi-private stock companies.
• 11William C. Wooldridge, Uncle Sam, The Monopoly Man (New Rochelle, N.Y.: Arlington House, 1970), pp. 7–9.
• 12Gabriel Roth, Paying for Roads: The Economics of Traffic Congestion (Middlesex, England: Penguin, 1967), p. 16; emphasis added. See also:
• 13The present author wishes to express a debt of gratitude to the two trailblazers into this subject: Jarret B. Wollstein, Public Services under Laissez Faire (New York: Arno Press, 1974), and Murray N. Rothbard, For a New Liberty (New York: Macmillan, 1973), pp. 202–18.
• 14William Vickrey, “Pricing and Resource Allocation in Transportation and Public Utilities,” American Economic Review (May 1963): 452; and “Breaking the Bottleneck by Sophisticated Pricing of Roadway Use,” General Motors Quarterly (Spring, 1974): 24.
• 15Says Rothbard:
• 16F.A. Hayek, The Constitution of Liberty (Chicago: University of Chicago Press, 1960), p. 160.
• 17I owe this point to David Ramsey Steele, of the Department of Sociology, University of Hull.
• 18We assume away here the presence of psychic income phenomena. See Walter Block “Coase and Demsetz on Private Property Rights,” Journal of Libertarian Studies 1, no. 2 (Spring, 1977): 111–15.
• 19George M. Smerk, Urban Transportation: The Federal Role (Bloomington: Indiana University Press, 1965), p. 228.
• 20Robert Haveman, The Economics of the Public Sector (New York: John Wiley and Sons, 1970), p. 23. For a telling criticism of the “control over price” confusion, see Murray N. Rothbard, Power and Market (Menlo Park, Calif.: Institute for Humane Studies, 1970), pp. 87–90.
• 21Cf. Israel Kirzner, Competition and Entrepreneurship (Chicago: University of Chicago Press, 1973).
• 22Alfred W. Stonier and Douglas C. Hague, A Textbook of Economic Theory, 3rd ed. (New York: John Wiley and Sons, 1964), p. 104.
• 23See Lionel Robbins, An Essay on the Nature and Significance of Economic Science (London: Macmillan, 1932).
• 24Kirzner, Competition and Entrepreneurship, pp. 122–23.
• 25Wilfred Owen, The Metropolitan Transportation Problem (Washington, D.C.: Brookings Institution, 1956), p. 119.
• 26John Burchard, “Design and Urban Beauty in the Central City,” in James Q. Wilson, ed., The Metropolitan Enigma (Garden City, N.Y.: Doubleday, 1970), p. 245; emphasis added.
• 27Noble, “Highway Design and Construction Related to Traffic Operations and Safety,” pp. 546–47.
• 28Z. Haritos, “Theory of Road Pricing,” 13 Transportation Journal (Spring, 1974): 57.
• 29Smerk, Urban Transportation, p. 228.
• 30Even if someone intends, for some reason, to purposefully invest in a “losing” proposition, we would still deny, ex ante, that he intends to worsen his position. That people act in order to benefit themselves is an axiom of economics. If a person intends to lose money through his investment, it could only be because, by so doing, he thinks he will increase his psychic income by enough to more than compensate himself for his loss of money. In short, he is engaging in charity.
• 31Roth, Paying for Roads, p. 61.
• 32Herbert D. Mohring, “Urban Highway Investments,” in Robert Dorfman, ed., Measuring Benefits of Government Investments (Washington, D.C.: Brookings Institution, 1965), p. 240.
• 33Haritos, “Theory of Road Pricing,” p. 56.
• 34Winch, The Economics of Highway Planning, p. 3.
• 35For an explanation of “monopoly as a government grant of exclusive privilege, see Rothbard (1971), pp. 586–619.
• 36James M. Buchanan, “The Pricing of Highway Services,” National Tax Journal 5, no. 2 (June 1952): 97. See also Smerk, Urban Transportation, p. 179; and Norman L. Cooper, Urban Transportation: An Answer (Bloomington: Bureau of Business Research, Indiana University, 1971), pp. 1, 15.
• 37Herbert Mohring, “Urban Highway Investments,” in Robert Dorfman, ed., Measuring Benefits of Government Investments (Washington, D.C.: Brookings Institution, 1965), p. 248.
• 38O.H. Brownlee and Walter W. Heller, “Highway Development and Financing,” American Economic Review (May 1956): 235.
• 39Wohl, “Must Something Be Done About Traffic Congestion?,” pp. 407–08.
• 40Morris, “Freeways and the Urban Traffic Problem,” p. 523.
• 41Dyckman, “Transportation in Cities,” p. 143. See also Owen, The Metropolitan Transportation Problem, p. 109.
• 42Bish and Kirk, Economic Principles and Urban Problems, p. 139. See also Anthony Downs, Urban Problems and Prospects (Chicago: Markham Publishing, 1970), p. 176; William Vickrey, “Maximum Output or Maximum Welfare? More on the Off-Peak Pricing Problem,” Kyklos 24 (May 1971): 305, Thompson, A Preface to Urban Economics, p. 334; Meiburg, “An Economic Analysis of Highway Services,” pp. 648, 653; Wohl, “Must Something Be Done About Traffic Congestion?,” p. 406; and Sam Yagar, “Potential Demand Response to Improved Roadway Service,” Traffic Quarterly (January 1973): 133. Gabriel Roth, Paying for Roads: The Economics of Traffic Congestion (Middlesex, England: Penguin) objects as follows: “It is doubtful whether cities as we know them today could ever be designed to accommodate all the vehicles that would appear if free uncongested roads were made available to them” (p. 15).
• 43Such prohibition would, of course, be inconsistent with a pure free-market system.
• 44Smerk, Urban Transportation, p. 198, favors the exclusion of automobiles from highly congested areas. See also Wohl, “Must Something Be Done About Traffic Congestion?,” p. 405. William J. Baumol, “Urban Services: Interactions of Public and Private Decisions,” in Howard G. Schaller, ed., Public Expenditure Decisions in the Urban Community (Baltimore, Md.: Johns Hopkins Press, 1963) justifies such extremely radical measures as “the complete banning of privately owned passenger cars from downtown streets to cope with the traffic problem,” on the ground that the traffic equilibrium effect has prevented the additional building of highways from solving the problem: “Freeways seem frequently to have turned out to be obsolete before they were completed” (p. 15).
• 45See Kain, “A Re-appraisal of Metropolitan Transportation Planning,” where he states:
• 46Vickrey, “Maximum Output or Maximum Welfare? More on the Off-Peak Pricing Problem,” p. 305. See also Meyer, “Urban Transportation,” p. 66, who objects to “physical controls” on the ground that “they will not differentiate . . . between different classes of user and the intensity of different groups’ desire to use urban highways.” See also, with regard to the heterogeneity criticism, Harold Torgerson, “Comment [on Brownlee and Heller],” American Economic Review 46 (May): 262, wherein it is argued that highway monies ought to be allocated on the basis of necessarily homogeneous “traffic counts”; Schreiber, Gatons and Clemmer, eds., Economics of Urban Problems, p. 93, also err in making use of “homogeneous service units . . . in comparing modes of transportation.” An author who takes account of the nonhomogeneity phenomena is Winch, The Economics of Highway Planning, p. 21.
• 47Thompson, A Preface to Urban Economics, p. 350.
• 48Roth, Paying for Roads, pp. 70–71.
• 49Were a government to demand the sacrifice of 46,700 citizens each year, there is no doubt that an outraged public would revolt. If an organized religion were to plan the immolation of 523,335 of the faithful in a decade, there is no question that it would be toppled. Were there a Manson-type cult that murdered 790 people to celebrate Memorial Day, 770 to usher in the Fourth of July, 915 to commemorate Labor Day, 960 at Thanksgiving, and solemnized Christmas with 355 more deaths, surely the New York Times would wax eloquent about the carnage, calling for the greatest manhunt this nation has ever seen. If Dr. Spock were to learn of a disease that killed 2,077 children under the age of five each year, or were New York City’s Andrew Stein to uncover a nursing home that allowed 7,346 elderly people to die annually, there would be no stone unturned in their efforts to combat the enemy. To compound the horror, were private enterprise responsible for this butchery, a cataclysmic reaction would ensue: investigation panels would be appointed, the justice department would seek out antitrust violations, company executives would be jailed, and an outraged hue and cry for nationalization would follow.
• 50Were a government to demand the sacrifice of 46,700 citizens each year, there is no doubt that an outraged public would revolt. If an organized religion were to plan the immolation of 523,335 of the faithful in a decade, there is no question that it would be toppled. Were there a Manson-type cult that murdered 790 people to celebrate Memorial Day, 770 to usher in the Fourth of July, 915 to commemorate Labor Day, 960 at Thanksgiving, and solemnized Christmas with 355 more deaths, surely the New York Times would wax eloquent about the carnage, calling for the greatest manhunt this nation has ever seen. If Dr. Spock were to learn of a disease that killed 2,077 children under the age of five each year, or were New York City’s Andrew Stein to uncover a nursing home that allowed 7,346 elderly people to die annually, there would be no stone unturned in their efforts to combat the enemy. To compound the horror, were private enterprise responsible for this butchery, a cataclysmic reaction would ensue: investigation panels would be appointed, the justice department would seek out antitrust violations, company executives would be jailed, and an outraged hue and cry for nationalization would follow.
• 51Were a government to demand the sacrifice of 46,700 citizens each year, there is no doubt that an outraged public would revolt. If an organized religion were to plan the immolation of 523,335 of the faithful in a decade, there is no question that it would be toppled. Were there a Manson-type cult that murdered 790 people to celebrate Memorial Day, 770 to usher in the Fourth of July, 915 to commemorate Labor Day, 960 at Thanksgiving, and solemnized Christmas with 355 more deaths, surely the New York Times would wax eloquent about the carnage, calling for the greatest manhunt this nation has ever seen. If Dr. Spock were to learn of a disease that killed 2,077 children under the age of five each year, or were New York City’s Andrew Stein to uncover a nursing home that allowed 7,346 elderly people to die annually, there would be no stone unturned in their efforts to combat the enemy. To compound the horror, were private enterprise responsible for this butchery, a cataclysmic reaction would ensue: investigation panels would be appointed, the justice department would seek out antitrust violations, company executives would be jailed, and an outraged hue and cry for nationalization would follow.
• 52Were a government to demand the sacrifice of 46,700 citizens each year, there is no doubt that an outraged public would revolt. If an organized religion were to plan the immolation of 523,335 of the faithful in a decade, there is no question that it would be toppled. Were there a Manson-type cult that murdered 790 people to celebrate Memorial Day, 770 to usher in the Fourth of July, 915 to commemorate Labor Day, 960 at Thanksgiving, and solemnized Christmas with 355 more deaths, surely the New York Times would wax eloquent about the carnage, calling for the greatest manhunt this nation has ever seen. If Dr. Spock were to learn of a disease that killed 2,077 children under the age of five each year, or were New York City’s Andrew Stein to uncover a nursing home that allowed 7,346 elderly people to die annually, there would be no stone unturned in their efforts to combat the enemy. To compound the horror, were private enterprise responsible for this butchery, a cataclysmic reaction would ensue: investigation panels would be appointed, the justice department would seek out antitrust violations, company executives would be jailed, and an outraged hue and cry for nationalization would follow.
• 53Were a government to demand the sacrifice of 46,700 citizens each year, there is no doubt that an outraged public would revolt. If an organized religion were to plan the immolation of 523,335 of the faithful in a decade, there is no question that it would be toppled. Were there a Manson-type cult that murdered 790 people to celebrate Memorial Day, 770 to usher in the Fourth of July, 915 to commemorate Labor Day, 960 at Thanksgiving, and solemnized Christmas with 355 more deaths, surely the New York Times would wax eloquent about the carnage, calling for the greatest manhunt this nation has ever seen. If Dr. Spock were to learn of a disease that killed 2,077 children under the age of five each year, or were New York City’s Andrew Stein to uncover a nursing home that allowed 7,346 elderly people to die annually, there would be no stone unturned in their efforts to combat the enemy. To compound the horror, were private enterprise responsible for this butchery, a cataclysmic reaction would ensue: investigation panels would be appointed, the justice department would seek out antitrust violations, company executives would be jailed, and an outraged hue and cry for nationalization would follow.
• 54The immediate need was to get the country out of the mud, to get a connected paved road system that would connect all county seats and population centers with mudless, dustless roads. These were the pioneering years. Safety, volume, and traffic operations were not considered a problem. But by the middle thirties there was an awakening and a recognition that these elements were vital to efficient and safe operation of the highway system.
• 55By the “middle thirties,” indeed, nearly one-half million people had fallen victim to traffic fatalities.
• 56Vehicle speed . . . alcohol consumption . . . the number of young drivers, changes in drivers’ incomes . . . the money costs of accidents. . the average age of cars . . . the ratio of new cars to all cars (because it has been suggested that while drivers familiarize themselves with their new cars, accident risk may increase) . . . traffic density . . . expenditures on traffic-law enforcement by state highway patrols . . . expenditures on roads . . . the ratio of imports to total cars (because there is evidence that small cars are more lethal than large cars if an accident occurs) . . . education of the population . . . and the availability of hospital care (which might reduce deaths if injury occurs).
• 57Further, David M. Winch cites another reason for public apathy: the belief that “[m]any persons killed on the roads are partly to blame for their death.” True, many victims of road accidents are partly responsible. But this in no way explains public apathy toward their deaths. For people killed in New York City’s Central Park during the late evening hours are also at least partially to blame for their own deaths; it takes a monumental indifference, feeling of omnipotence, absent-mindedness or ignorance to embark upon such a stroll. Yet the victims are pitied, more police are demanded, and protests are commonly made.
• 58We must realize that just because the government has always built and managed the roadway network, this is not necessarily inevitable, the most efficient procedure, nor even justifiable. On the contrary, the state of affairs that has characterized the past is, logically, almost entirely irrelevant. Just because “we have ‘always’ exorcised devils with broomsticks in order to cure disease” does not mean that this is the best way.
• 59Today, most Americans probably feel the telegraph naturally belongs within the private sphere, and few doubt the Post Office should naturally be a public monopoly. “Naturally,” however, in such a context means only that’s-the-way-it’s-been-for-as-long-as-we-can-remember, an Americanized version of Pope’s declaration that “Whatever is is right.” Yet few could think of a convincing a priori rationale for distinguishing the postal from the telegraphic mode of communication. At least one Postmaster General could not: in 1845 his Annual Report prophesied intolerable competition from the telegraph and suggested it might appropriately be committed to the government. At that early stage in its history, the telegraph might conceivably have become a government monopoly for the same reasons the Post Office already was, but the mere passage of time has obliterated any consideration of whether they were good reasons or bad reasons.
• 60[T]here is a[n] approach to the problem of traffic congestion—the economic approach—which offers a rational and practical solution. . . . The first step is to recognize that road space is a scarce resource. The second, to apply to it the economic principles that we find helpful in the manufacture and distribution of other scarce resources, such as electricity or motor cars or petrol. There is nothing new or unusual about these principles, nor are they particularly difficult. What is difficult is to apply them to roads, probably because we have all been brought up to regard roads as community assets freely available to all comers. The difficulty does not lie so much in the technicalities of the matter, but rather in the idea that roads can usefully be regarded as chunks of real estate.
• 61Let us now turn to a consideration of how a free market in roads might operate. Along the way, we will note and counter the intellectual objections to such a system. All transport thoroughfares would be privately owned: not only the vehicles, buses, trains, automobiles, trolleys, etc., that travel upon them, but the very roads, highways, byways, streets, sidewalks, bridges, tunnels, and crosswalks themselves upon which journeys take place. The transit corridors would be as privately owned as is our fast food industry.
• 62Consider now a road whose main function is to facilitate through traffic. If it is owned by one person or company, who either built it or bought the rights of passage from the previous owners, it would be foolish for him to install dozens of toll gates per mile. In fact, toll gates would probably not be the means of collection employed by a road owner at all. Now there exist highly inexpensive electrical devices which can register the passage of an automobile past any fixed point on a road. Were suitable identifying electronic tapes attached to the surface of each road vehicle, there would be no need for a time-wasting, labor-costly system of toll collection points. Rather, as the vehicle passes the check point, the electrical impulse set up can be transmitted to a computer which can produce one monthly bill for all roads used, and even mail it out automatically. Road payments could be facilitated in as unobtrusive a manner as utility bills are now.
• 63This does indeed appear frightening, but only because we are not accustomed to dealing with such a problem. It could not exist under the present system, so it is difficult to see how it could be solved by free-market institutions. Yet, the answer is simple: no one would buy any plot of land without first insuring that he had the right to enter and leave at will.
• 64For one thing, these are not the kinds of questions that can be answered in advance with any degree of precision, and not only in transportation. The same limitations would have faced early attempts to specify industrial setups in computers, televisions, or any other industry. It is impossible to foretell the future of industrial events because, given a free-market situation, they are the result of the actions of an entire, cooperating economy, even though these actions may not be intended by any individual actor. Each person bases his actions on the limited knowledge at his disposal.
• 65Just as private universities, athletic stadiums, etc., now enforce rules whose purpose is the smooth functioning of the facility, so might road owners levy fines to ensure obedience to rules. For example, automobiles stuck in an intersection could be registered by the road’s computer-monitoring system, and charged an extra amount for this driving infraction, on an itemized bill.
• 66A similar result would take place with two street owners, no matter what the property dispersal. It is easy to see this if the larger street company owns the intersections. The larger company would simply keep a high proportion (2/3, 3/4, or perhaps even 4/5) of green light time for itself, selling only the remaining small fraction to the intersecting side street. But much the same result would ensue if the smaller road owned the common intersections! Although the relatively lightly traveled road company might like to keep the lion’s share of the green lights for itself, it will find that it cannot afford to do so. The more heavily traveled street, representing a clientele willing and able in the aggregate to pay far more for green light privileges, will make it extremely tempting for the small street owner to accept a heavy payment, in order to relinquish most of its green light time. In other words, the customers of the main street, through indirect payments via the main street owner, will bid time away from the smaller number of customers using the minor street. This principle is well established in business, and is illustrated every time a firm sublets space, which it could have used to satisfy its own customers, because it receives more income subletting than retaining the premises for its own use.
• 67On the rare occasions when the feasibility of private road ownership has been considered by mainstream economists, it has been summarily rejected, based on the impossibility of competition among private road owners. Seeing this point as almost intuitively obvious, economists have not embarked on lengthy chains of reasoning in refutation. Thus, says Smerk, rather curtly, “Highways could not very well be supplied on a competitive basis, hence they are provided by the various levels of government.”
• 68A number of conditions must be met if the private sector of the economy—the market system—is to function efficiently. Indeed, these conditions are essential if the private sector is to perform in the public interest. . . . [I]t is the absence of these conditions which often gives rise to demands for public sector [government] action.
• 69Therefore, the objection to private roads on the ground that they are inconsistent with perfect competition cannot be sustained. It is true that this industry could not maintain the rigid standards required for perfect competition, but neither can most. In pointing out that perfect competition cannot apply to roads, we have by no means conceded that competition between the various road owners would not be a vigorous, rivalrous process. On the contrary, were we to allow that perfect competition could apply to roads, we would then have to retract our claim that vigorous competition could also ensue. For perfect competition and competition in the ordinary sense of that word (implying rivalry, attempts to entice customers away from one another) are opposites, and inconsistent with each other.
• 70The shape of the average revenue curve [demand curve] of the individual firm will depend on conditions in the market in which the firm sells its product. Broadly speaking, the keener the competition of its rivals and the greater the number of fairly close substitutes for its product, the more elastic will a firm’s average revenue curve be. As usual, it is possible to be precise about limiting cases. One limiting case will occur when there are so many competitors producing such close substitutes [the perfectly competitive model] that the demand for the product of each individual firm is infinitely elastic and its average revenue curve is a horizontal straight line. This will mean that the firm can sell as much of its product as it wishes at the ruling market price. If the firm raises its price, then, owing to the ease with which the same, or a very similar, product can be bought from competitors, it will lose all its customers. If the firm were to lower its price, it would be swamped by orders from customers wishing to take advantage of its price reduction. The demand—and the elasticity of demand—for its product would be infinite.
• 71Instead of concentrating on the maximization of ends, assuming given scarce means, as does the Robbinsian notion of perfect competition, the market-process view makes the realistic assumption that the means, although scarce, are in no way given; rather, knowledge of them must actively be sought out. The allocation of scarce means among competing ends is a passive procedure when the means and the ends are known. All that need be done can be accomplished by a suitably programmed computer. But the active seeking out of the ends and the means in the first place is a task that can be accomplished only by entrepreneurial talent: active, not passive. The entrepreneur, denied his crucial role in the perfectly competitive world view, takes center stage in the market-process conception.
• 72We have seen that the market proceeds through entrepreneurial competition. In this process market participants become aware of opportunities for profit: they perceive price discrepancies (either between the prices offered and asked by buyers and sellers of the same good or between the price offered by buyers for a product and that asked by sellers for the necessary resources) and move to capture the difference for themselves through their entrepreneurial buying and selling. Competition, in this process, consists of perceiving possibilities of offering opportunities to other market participants which are more attractive than those currently being made available. It is an essentially rivalrous process . . . (which) . . . consists not so much in the regards decision-makers have for the likely future reactions of their competitors as in their awareness that in making their present decisions they themselves are in a position to do better for the market than their rivals are prepared to do; it consists not of market participants’ reacting passively to given conditions, but of their actively grasping profit opportunities by positively changing the existing conditions.
• 73The Port of New York Authority Bus Terminal helps relieve mid-Manhattan traffic congestion. Approximately 90% of intercity bus departures and intercity bus passengers from mid-Manhattan originate at this terminal. The diversion of this traffic on overhead ramps from the terminal to the Lincoln Tunnel has been equivalent to adding three cross-town streets.
• 74On one short span of East River Drive [in New York City] there are grassed terraces carried over the traffic lanes right out to the edge of the East River, a special boon for nearby apartment dwellers. The solution was perhaps triggered by the fact that space between the established building lines and the river was so narrow as to force the superposition of the north and south lanes. But this did not do more than suggest the opportunity. Applause goes to those who grasped it, but none to those who with the good example in view so consistently ignored it thereafter.
• 75It seems clear that, ultimately, many urban freeways will become double or triple-deck facilities, with upper decks carrying the longer distance volumes, possibly with reversible lanes, and probably operating with new interchanges to avoid flooding of existing interchanges and connecting streets.
• 76There is joint road consumption by consumers with different demand functions. The road is not as good as steel which may be produced to different specifications of quality and dimensions. The economic characteristics necessitate the production of one kind of road for all users at any given place.
• 77Another objection charges that competition among roadway entrepreneurs would involve wasteful duplication. Says George M. Smerk: “[C]ompetition between public transport companies, particularly public transit firms with fixed facilities, would require an expensive and undesirable duplication of plant.”
• 78We must first of all distinguish between investment ex ante and ex post. In the ex ante sense, all investment is undertaken with the purpose of earning a profit. Wasteful overbuilding or needless duplication cannot exist in the ex ante sense; no one intends, at the outset of his investment, that it should be wasteful or unprofitable. Ex ante investment must of necessity, be non-wasteful.
• 79while it is possible to envisage competition in the provision of roads connecting points at great distances apart—as occurred on the railways in the early days—it is not possible to envisage competition in the provision of access roads in towns and villages, for most places are served by one road only. A highway authority is in practice in a monopoly position. If any of its roads were to make large profits, we could not expect other road suppliers to rush in to fill the gap. If losses are made on some roads, there are no road suppliers to close them down and transfer their resources to other sectors of the economy.
• 80Says Mohring, “But indivisibilities do exist in the provision of transportation facilities. Each railroad track must have two rails, and each highway or country road must be at least as wide as the vehicles that use it.” In similar vein, says Haritos, “To get from A to B, you need a whole lane, not just half, for the full distance, not half of it.” And, in the words of Peter Winch, “indivisibility of highways makes it impractical to have competing systems of roads, and the responsible authority must therefore be a monopoly.”
• 81Says Mohring, “But indivisibilities do exist in the provision of transportation facilities. Each railroad track must have two rails, and each highway or country road must be at least as wide as the vehicles that use it.” In similar vein, says Haritos, “To get from A to B, you need a whole lane, not just half, for the full distance, not half of it.” And, in the words of Peter Winch, “indivisibility of highways makes it impractical to have competing systems of roads, and the responsible authority must therefore be a monopoly.”
• 82Says Mohring, “But indivisibilities do exist in the provision of transportation facilities. Each railroad track must have two rails, and each highway or country road must be at least as wide as the vehicles that use it.” In similar vein, says Haritos, “To get from A to B, you need a whole lane, not just half, for the full distance, not half of it.” And, in the words of Peter Winch, “indivisibility of highways makes it impractical to have competing systems of roads, and the responsible authority must therefore be a monopoly.”
• 83We do not believe that the existence of indivisibilities is enough to guarantee monopoly, defined by many as a situation in which there is a single seller of a commodity. There are indivisibilities in every industry, and in all walks of life. Hammers and nails, bicycles and wheelbarrows, locomotives and elevators, tractors and steel mills, professors and podiatrists, ballet dancers and bricklayers, musicians and motorists, ships and slippers, buckets and broomsticks, none of them can be chopped in half (costlessly) and be expected to produce just half of what they had been producing before. A railroad needs two rails (with the exception, of course, of the monorail), not one, or any fraction thereof. Also, in order to connect points A and B, it must stretch completely from one point to the other. It may not end halfway between them, and offer the likelihood of transportation between the two points.
• 84(e) Expanding roads. One of the most popular antidotes to congestion is to build more roads. This solution, benefiting from the seeming presence of common sense, has attracted widespread attention and praise. As Buchanan reports, “the recommended solutions usually take the form of expansion and reconstruction of the highway system, all of which involve considerable additional investment of resources in highways and streets.” Mohring goes even further. In his view,
• 85Currently, the only technique being employed to an appreciable extent to alleviate urban traffic congestion is investment in additional highway capacity. Some of these additions to capacity have involved widening or otherwise altering existing arterial streets, but most of them have involved the construction of entirely new, high-speed, limited-access expressways.
• 86without raising the amounts spent by highway users, excess demand also can be cured by drawing on the general taxpayer to increase the supply—as some auto manufacturers and the American Automobile Association will testify.
• 87Oft-times, in addition to calling for increased roadway investments, specific designs are also advocated. Wohl, for example, favors building roads to bypass Central Business Districts of large cities since “through traffic as a proportion of downtown street traffic . . . usually ranges between 30 and 60 percent.” And Morris, in a thinly disguised call for an increased roadway supply, favors “using urban freeway design criteria which give preference to considerations of peak hour capacity rather than off-peak travel time.”
• 88Oft-times, in addition to calling for increased roadway investments, specific designs are also advocated. Wohl, for example, favors building roads to bypass Central Business Districts of large cities since “through traffic as a proportion of downtown street traffic . . . usually ranges between 30 and 60 percent.” And Morris, in a thinly disguised call for an increased roadway supply, favors “using urban freeway design criteria which give preference to considerations of peak hour capacity rather than off-peak travel time.”
• 89Additional accommodation creates additional traffic. The opening of a freeway designed to meet existing demand may eventually increase that demand until congestion on the freeway increases the travel time to what it was before the freeway existed.
• 90A second reason why new routes congest prior to forecast is simply that when transportation capacity increases and peak-hour time decreases, fewer drivers will take the trouble to beat the rush. Instead, they will travel closer to the time of their actual preference. Thus as traffic capacity increases, there is a shortening of the rush hour, but very little reduction in congestion during the new shorter peak-hours of travel.
• 91The answer lies in the concept of price: when charges are prohibited, i.e., when there is a zero price for highway use, then and only then, attempts to build our way out of congestion are doomed to failure. As long as highway services are “free”—as long as people pay for them whether they use them during peak periods or not, and pay no more for this use than for nonuse—then the “equilibrium” phenomenon will tend to consign to failure all attempts to cure congestion by adding to the highway stock. Private enterprise, too, would “fail” if it were prohibited from charging a price for services rendered.
• 92(f) Automobile banning. A solution to the congestion problem widely beloved of some less sophisticated economists and of many popular writers is to ban cars from crowded highways. On the most simplistic level, the “reasoning” seems to be that since road congestion consists of too many automobiles, the best and surest way to end the problem is to ban the offending vehicles. A slightly more cogent argument is that while automobiles usually carry between 1.2 and 1.5 passengers per vehicle, a bus, taking up no more than two and one-half times the highway space, is able to carry up to fifty passengers at a time.
• 93The problem with both views, of course, is that they treat human beings as homogeneous units. Underlying both is the democratic or “nose-counting” approach to economics which imparts a false equality into the analysis. For the trips of human beings are not all equal. That a bus can carry, for a given road space, a multiple of the people who can travel by car, does not mean that the bus is doing more “work” than the car. Even less justified is the assumption that the value of the bus’s services is equal to the same multiple by which it carries more people than a car.
• 94Perhaps a numerical example will clarify this point. Suppose that the average car carries 2.0 passengers per trip, that the bus carries forty people, and that the bus takes up twice the highway space of the auto. Dividing the forty people in half, we arrive at twenty as the number of people carried by a bus of equivalent size of a car. Can we say that the bus is doing ten times the amount of work being done by a car, since the former carries twenty people, while the latter only carries two? No we cannot, unless we make the further assumption that all people concerned are homogeneous in terms of the value they place, or which are placed on their trips. To take only the starkest example, all twenty people in the bus may be out on a pleasure tour, the value of which to them is barely above the costs of the fare they had to pay for the trip. And the two people in the automobile might be a man and his pregnant wife, rushing desperately to the hospital for a delivery. Not only is it not true that the bus is doing ten times the work of the auto; it is by no means clear that the bus is even doing more valuable work than the private vehicle. William Vickrey, one of the few economists to clearly apply this point to transport, criticizes “an aggregate made up of components which, through happening to have a common physical unit of measurement, are economically quite disparate.” It is, moreover, impossible to determine whether the bus or the automobile, in any given case, is doing more valuable work, in the absence of a road pricing system which allows them to bid against one another for scarce road space.
• 95Issue has been taken with this point by Thompson, who holds that under certain circumstances “an outright ban on automobile traffic becomes an approximation of and a rational substitute for a cost-based price.” And the special circumstances? “If it is generally agreed that the price that would be charged for automotive access to the Central Business District (C.B.D.) . . . is so great that no one would pay it.” Thompson reasons: “Whether the demand for automobile movement was priced out of the core area by [high prices], the effect is the same.”
• 96Roth has set out four criteria for judging systems which seek to reduce highway congestion. First, selectivity: a system should be able to distinguish those road users whose needs for the service are immediate and pressing from those whose needs are of a lesser intensity. Second, flexibility: it should discourage use of crowded roads only, not of empty ones. Third, practicability: it should be “simple, fair, cheap and enforceable.” Fourth, remediability: the system should be able to pinpoint the trouble spots, and act automatically to remove them. And how do automobile bans, or a system of partial bans, stack up? Says Roth: