Study Guide to Man, Economy, and State with Power and Market

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Chapter Summary In this chapter we analyze (using economic science) the effects of violations of property rights, and in particular the effects of State action, i.e., institutionalized and widespread violations. Intervention is the intrusion of aggressive physical force into society. Autistic intervention occurs when the aggressor uses force on an individual such that no one else is affected. Binary intervention occurs when the aggressor establishes a hegemonic relationship between himself and the victim. Triangular intervention occurs when the aggressor uses force to alter the relations between a pair of subjects. The free market maximizes ex ante utilities and has mechanisms to promote ex post fulfillment of these plans. In contrast, each act of government intervention always harms at least one party, and moreover suffers from indirect consequences that further distort the economy. A price control involves the use of force to alter the terms on which individuals exchange goods or services. Maximum prices lead to shortages, i.e., situations where quantity demanded exceeds quantity supplied. (A prime example is the shortage of apartments due to rent control.) Minimum prices lead to surpluses, i.e., situations where quantity supplied exceeds quantity 155 CHAPTER 12 THE ECONOMICS OF VIOLENT INTERVENTION IN THE MARKET
156 Study Guide to Man, Economy, and State with Power and Market demanded. (A prime example is the unemployment due to the minimum wage.) Both taxation and government spending distort the economy; the former drains resources away from the private sector while the latter distorts resource allocation away from what it otherwise would have been. There can be no such thing as a neutral tax, because taxation is coercive and thus differs fundamentally from a voluntary price. A so-called flat tax is not the equivalent of a price, because in the market rich customers do not pay in proportion to their income. A head tax would be closer, but it too is coercive; some taxpayers would be forced to fund certain government activities that they abhor. It is a myth that taxes on a firm can be “passed on” to customers. If firms could really do this—i.e., raise prices to generate extra revenues to offset a new tax—then why didn’t the firms do it before? It is true that a tax will eventually raise prices paid by consumers, but this is achieved by lowering profitability and hence supply, which then raises the equilibrium price. Economists often try to gauge the “productive contribution” of government activities by the size of its expenditures. Yet this is directly opposite from the market approach, where value is gauged by how much customers spend on products, not by how much the business itself spends in making them! In a credit expansion the government artificially lowers the interest rate, thereby spurring investment in higher stages of production. There is a temporary “boom” period of illusory prosperity. With no genuine increase in saving, the capital structure becomes unbalanced and eventually entrepreneurs realize that their plans cannot be fulfilled. The “bust” ensues when businesses discontinue the unprofitable lines and resources must be reallocated to their proper uses.
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CONTENTS INTRODUCTION . . . . . . .
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In June of 2004, I became convinced
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Introduction ix appropriate, I have
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Chapter Summary In a money economy,
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Chapter 4: Prices and Consumption 4
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Chapter Summary In the evenly rotat
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Chapter 6: Production: The Rate of
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Chapter Summary This chapter explai
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Chapter 7: Production: General Pric
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Chapter Summary Entrepreneurial pro
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Chapter 8: Production: Entrepreneur
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Chapter 4: Binary Intervention: Tax
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Chapter Summary There has been litt
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Chapter 5: Binary Intervention: Gov
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Apriorism, 1, 9 Ability-to-pay prin
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Index 251 Equilibrium, 47, 104 macr
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Index 253 Medium of exchange, 27, 3
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Index 255 See also Economy, Evenly
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