The Privatization of Roads and Highways - Ludwig von Mises Institute

Public Goods and Externalities: The Case of Roads 139
indifference curves to bend forward. This would not affect the
analysis but would answer a critic’s minor objection. 53
While it is true that, in a formalistic sense, indifference curves
could be drawn as concave to the origin to represent disutility,
garbage, or negative feelings toward the “good” in question, 54
this answer will not suffice. When we reflect on the fact that
Samuelson’s use of the concept of public goods to justify government
takeovers is based on the assumption that such takeovers
will maximize everyone’s welfare, we can see the weakness of
this answer. A person for whom a good or its presumed external
benefits are in fact disadvantageous will actually lose by its subsidization.
To the confirmed pacifist, for example, the expenditure
of ever more billions of dollars for military purposes leads to
increased disutility. And to add insult to injury, Samuelson’s
argument is used to justify taxing the pacifist, supposedly for his
own benefit, to cover the costs of those increasing expenditures.
What we have, then, is a situation which forces a person to pay
for the provision of a good that he regards as a “poison.”
53Samuelson, “Diagrammatic Exposition of a Theory of Public Expenditure,”
pp. 350–55. Neither will Tiebout’s attempted reformulation do: “A
definitive alternative to Samuelson’s might be simply that a public good is
one which should be produced, but for which there is no feasible method of
charging the consumers” (Tiebout, “A Pure Theory of Local Expenditures,”
p. 417). We can ask Tiebout (and Samuelson, too) how we can know that consumers
really value a good for which they have no way of registering a
demand. If there is no feasible method of charging a consumer, then he can
never make his desires known.
54This is not the time to expound on the general difficulties of indifference
curve analysis. It is worth noting, however, that it is impossible to
reveal indifference through the usual market procedures of buying or selling.
Thus, an economics based on the view that preference orderings are
seen only in human action must entirely reject indifference-curve analysis.
For a full exposition of this point, and a general discrediting of indifference
as an economic category, see: Rothbard, Man, Economy, and State, pp.
265–67; and Walter Block, “On Robert Nozick’s ‘On Austrian Methodology’,”
Inquiry 23 (Fall 1980): 422–37.