Man, Economy, and State with Power and Market

Let us now return to the resource-using activities of government, where the State professes to be providing a service of some sort to the public. Government “service” may be either furnished free or sold at a price to users. “Free” services are particularly characteristic of government. Police and military protection, firefighting, education, parks, some water supply come to mind as examples. The first point to note, of course, is that these services are not and cannot be truly free. A free good, as we saw early in this book, would not be a good and hence not an object of human action; it would simply exist in superabundance for all. If a good does not exist aplenty for all, then the resource is scarce, and supplying it costs society other goods forgone. Hence it cannot be free. The resources needed to supply the free governmental service are extracted from the rest of production. Payment is made, however, not by users on the basis of their voluntary purchases, but by a coerced levy on the taxpayers. A basic split is thus effected between payment and receipt of service. This split is inherent in all government operations.

Many grave consequences follow from the split and from the “free” service as well. As in all cases where price is below the free-market price, an enormous and excessive demand is stimulated for the good, far beyond the supply of service available. Consequently, there will always be “shortages” of the free good, constant complaints of insufficiency, overcrowding, etc. An illustration is the perpetual complaints about police insufficiency, particularly in crime-ridden districts, about teacher and school shortages in the public school system, about traffic jams on government-owned streets and highways, etc. In no area of the free market are there such chronic complaints about shortages, insufficiencies, and low quality service. In all areas of private enterprise, firms try to coax and persuade consumers to buy more of their product. Where government owns and operates, on the other hand, there are invariably calls on consumers for patience and sacrifice, and problems of shortages and deficiencies continually abound. It is doubtful if any private enterprise would ever do what the New York City and other governments have done: exhort consumers to use less water. It is also characteristic of government operation that when a water shortage develops, it is the consumers and not the government “enterprisers” who are blamed for the shortage. The pressure is on consumers to sacrifice, and to use less, while in private industry the (welcome) pressure is on entrepreneurs to supply more.60

The well-known inefficiencies of government operation are not empirical accidents, resulting perhaps from the lack of a civil service tradition. They are inherent in all government enterprise, and the excessive demand fomented by free and other underpriced services is just one of the many reasons for this condition.

Free supply not only subsidizes the users at the expense of nonusing taxpayers; it also misallocates resources by failing to supply the service where it is most needed. The same is true, to a lesser extent, wherever the price is under the free-market price. On the free market, consumers can dictate the pricing and thereby assure the best allocation of productive resources to supply their wants. In a government enterprise, this cannot be done. Let us take again the case of the free service. Since there is no pricing, and therefore no exclusion of submarginal uses, there is no way that the government, even if it wanted to, could allocate its services to their most important uses and to the most eager buyers. All buyers, all uses, are artificially kept on the same plane. As a result, the most important uses will be slighted. The government is faced with insuperable allocation problems, which it cannot solve even to its own satisfaction. Thus, the government will be confronted with the problem: Should we build a road in place A or place B? There is no rational way whatever by which it can make this decision. It cannot aid the private consumers of the road in the best way. It can decide only according to the whim of the ruling government official, i.e., only if the government officials do the “consuming,” and not the public.61 If the government wishes to do what is best for the public, it is faced with an impossible task.

• 60See Murray N. Rothbard, “Government in Business” in Essays on Liberty (Irvington-on-Hudson, N.Y.: Foundation for Economic Education, 1958), I V, 186 ff. It is therefore characteristic of government ownership and “enterprise” that the consumer becomes, not a “king” to be courted, but a troublesome fellow bent on using up the “social” product.
• 61Thus, the government official may select a road that will yield him or his allies more votes.