The Privatization of Roads and Highways - Ludwig von Mises Institute

102 The Privatization of Roads and Highways
adding to the mileage of road construction? This will not work
either. On the one hand, the addition of government investment
in roads may decrease the amount of private investment, 5 so that
the total amount of road building, private plus public, may fall
below the previously established market level and thus worsen
the so-called original underinvestment in roads. On the other
hand, government, unshackled by any market test of profitability,
may so expand the scope of road building that a resultant
overinvestment may ensue. If so, a new misallocation will
emerge, with an overinvestment substituted for an underinvestment.
Further, even if government action results in the correct
amount of total road mileage, government management of its
domain may be so inept as to erase any allocation gains. If any of
these eventualities obtains, and there is little reason to think not,
then the argument fails.
There is another flaw in Bonavia’s view: his notion of a
“chronic shortage of capital.” Economies are always short of capital
in the sense that people would prefer to have more; this is
because capital is an economic good. If capital is not in short supply,
it becomes a free good, or a general condition of human welfare,
and thus is not amenable to economic analysis. If, however,
“chronic shortage of capital” is meant to distinguish poor from
wealthy economies, then it is irrelevant to the issue of externalities.
The presence of neighborhood spill-overs has to do only
with whether third parties are affected, and they will occur or fail
to occur regardless of the wealth of a society.
The externalities argument for governmental roads, although
widely acclaimed in the modern era, is by no means recent. On
5 Whenever government competes in the market, it has a chilling effect on
private investment in that area, for the government can underwrite its
losses out of tax proceeds, and a market enterprise cannot. In this paper we
assume the plausibility of a private market in road building. For further
explication, see Walter Block, “Free-Market Transportation: Denationalizing
the Roads,” Journal of Libertarian Studies 3, no. 2 (Summer, 1979): 209–38,
reprinted in the present volume as chapter 1.