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

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Chapter 5: Binary Intervention: Government Expenditures 221 Chapter Outline There has been little economic analysis of government expenditure. Although in the real world the two are always mixed, we may conceptually distinguish between pure transfers and resource-using expenditures. 1. Government Subsidies: Transfer Payments All subsidies transfer income from the efficient to the inefficient and distort resource allocation. They lower overall production by (1) diverting energies into “rent seeking” and (2) lowering the incentives to produce. 2. Resource-Using Activities: Government Ownership versus Private Ownership Government agents spend funds in order to achieve their ends, and hence all government spending is consumption, not investment. No government service can be “free” because of the scarce resources involved, but by charging low (or zero) prices, the government causes shortages and conflict. It is vain for the government to run an enterprise “on a business basis,” for the government enterprise raises its funds through coercion. Not only does this distort the incentives, it also makes it impossible for the State personnel to serve the desires of their “customers.” Even if a State enterprise allows competition, and buys factors and sells output in an open market, its initial capital was raised by coercion and hence gives it an unwarranted advantage. Finally, if someone really wants the enterprise to be run “on a business basis,” then he should favor complete privatization!
222 Study Guide to Man, Economy, and State with Power and Market 3. Resource-Using Activities: Socialism Socialism refers to government ownership of the “means of production.” The particular form of government (democracy, monarchy, etc.) and the particular ideology (fascist, communist, etc.) are irrelevant to the economic analysis of socialism. The U.S. is more socialistic than generally believed, because of government loans (or guarantees) to business. The U.S.S.R. was less socialistic than generally believed because it relied on market prices from abroad and black markets internally. 4. The Myth of “Public” Ownership Ownership is the ultimate control and direction of a resource. The public cannot “own” a park or a school building; the citizen who believes otherwise should try setting policies or selling his aliquot ownership share. Even government officials do not truly own resources at State disposal, because they enjoy only temporary control. In contrast to popular belief, politicians are inherently shortsighted and tend to use resources too quickly. Private owners, on the other hand, can always sell their property for its capitalized value, and thus will exploit it at the optimal rate. 5. Democracy Democracy refers to majority rule, but in the “classical” sense it means majority decision on policies, whereas in the “modern” sense it usually means majority decision on rulers (“representatives”) who then decide on actual policies. Although in principle democratic governments can be more or less laissez-faire, economics does have something to say about institutional biases. The principle of democracy is riddled with contradictions. Can the people vote to end a democracy (either by moving to
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STUDY GUIDE TO MAN, ECONOMY, AND ST
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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 Summary Consumer preference
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Chapter 10: Monopoly and Competitio
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Chapter Summary Like all goods, the
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Chapter 11: Money and Its Purchasin
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Page 264 and 265: Index 253 Medium of exchange, 27, 3
Page 266 and 267: Index 255 See also Economy, Evenly
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Study Guide to Man, Economy, and State with Power and Market

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