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

Chapter 12: The Economics of Violent Intervention in the Market 161
F. Taxing “Excess Purchasing Power”
Keynesians suggest taxation as a remedy for price
inflation, by “sopping up” excess purchasing power. This
suggestion has several flaws: Why are higher prices considered
more burdensome than higher taxes? Also, why
would the government’s action reduce aggregate
demand, since the government spends its tax revenues
anyway? It also overlooks the fact that cause of price
inflation is government inflation of the money supply.
9. Binary Intervention: Government Expenditures
A. The “Productive Contribution” of
Government Spending
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! So-called government
“investment” is misnamed because there is no reason to
believe such projects will serve the future consumption
desires of consumers.
B. Subsidies and Transfer Payments
Subsidies distort resource allocation relative to the
free market outcome. It is particularly ironic when the
government subsidizes activities that it (allegedly) wishes
to minimize, such as poor relief.