The Privatization of Roads and Highways - Ludwig von Mises Institute

Public Goods and Externalities: The Case of Roads 101
We are only concerned here with one aspect of positive intervention
by the State—namely, through investment in transport.
It is clear . . . that the object of State investment is to secure output
of a kind whose private net returns are lower than its social
net returns, and which accordingly tends to be less than it
would be under ideal conditions. A railway, for example, may
yield high prospective social returns, and yet, in a community
chronically short of capital, offer lower private returns than
other industries. The State may then find it advisable to invest
the communities’ resources in railway construction. 3
This argument is erroneous, for its conclusion does not follow
from its premises. Even if we accept the view that private road
ownership will indeed result in underinvestment, it does not logically
follow that government must step into the breach and
make up the deficit. The contention that government should
involve itself with the private economy is a moral conclusion,
one that can be reached only if there are ethical arguments in the
premises. But the science of economics must of necessity be
value-free. 4 Therefore, no strictly economic argument can ever
establish the legitimacy of government intervention into the economic
sphere.
Can we interpret the argument as leading to the conclusion
that, since the market will underinvest, given externalities, government
action will correct the misallocation of resources by
3Michael R. Bonavia, The Economics of Transport (London: Cambridge
University Press, 1954), pp. 48–49. Consider also this statement:
Transportation almost always involves rather strong . . . externalities
of one sort or another, so that unsubsidized private operation
involves necessarily higher prices, in order to break even,
than would be conducive to the most efficient utilization of the
facilities. (private correspondence, September 6, 1977, from
William Vickrey to the present author)
4See Murray N. Rothbard, Man, Economy and State: A Treatise on Economic
Principles, 2 vols. (Princeton, N.J.: D. Van Nostrand, 1962), p. 883. Also, Walter
Block, “On Value Freedom in Economics,” The American Economist 19
(Spring, 1975).