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NOTE 5. Binary Intervention: Government Expenditures

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Chapter 5. Binary Intervention. Government Expenditures.

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When writers on public finance and political economy reach the topic of government expenditures,

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they have traditionally abandoned analysis and turned to simple institutional description of various types of governmental expenditure.

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In discussing taxation, they engage in serious analysis, faulty as some of it may be, but they have devoted little attention to a theoretical treatment of expenditure.

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Clement L. Harris, in fact, goes so far as to say that a theory of government expenditure is impossible, or at least non-existent.

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The bulk of discussion of expenditures is devoted to describing their great proliferation, absolute and relative, in the last decades, coupled with the assumption, implicit or explicit, that this growth has been necessary to cope with the growing complexities of the economy.

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This slogan, or similar ones, have gained almost universal acceptance, but have never been rationally supported.

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On its face, the statement is unproved, and will remain so until proved.

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Broadly, we may consider two categories of government expenditures, transfer and resource-using.

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Resource-using activities employ non-specific resources that could have been used for other production.

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They withdraw factors of production from private uses to state-designated uses.

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Transfer activities may be defined as those which use no resources, that is, which transfer money directly from Peter to Paul.

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These are the pure subsidy-granting activities.

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Now, of course, there is considerable similarity between the two branches of government action.

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Both are transfer activities insofar as they pay the salaries of the bureaucracy engaged in these operations.

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Both even involve shifts of resources, since transfer activities shift non-specific factors from free-market voluntary activity to demands stemming from state-privileged groups.

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Both subsidize. The supply of governmental services, as well as the purchase of material by government enterprises, constitutes a subsidy.

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The difference is important enough to preserve, for in one case goods are used for, and resources

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are devoted to, state purposes as the state wills.

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In the other, the state subsidizes private individuals, who employ resources as they

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think best.

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Transfer payments are pure subsidies, without prior diversion of resources.

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We shall first analyze transfer payments as pure subsidies and then see how the analysis

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applies to the subsidizing aspects of resource-using activities.

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1.

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Government Subsidies – Transfer Payments

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There are two and only two ways of acquiring wealth, the economic means, voluntary production

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and Exchange, and the Political Means, Confiscation by Coercion.

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On the free market, only the economic means can be used, and consequently everyone earns

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only what other individuals in society are willing to pay for his services.

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As long as this continues, there is no separate process called distribution.

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There are only production and exchange of goods.

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Let government subsidies enter the scene, however, and the situation changes.

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Now the political means to wealth becomes available.

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On the free market, wealth is only a resultant of the voluntary choices of all individuals,

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and the extent to which men serve each other.

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But the possibility of government subsidy permits a change.

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It opens the way to an allocation of wealth in accordance with the ability of a person

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or group to gain control of the state apparatus.

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Government subsidy creates a separate distribution process, not redistribution as some would

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be tempted to say.

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For the first time, earnings are severed from production and exchange and become separately

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are determined. To the extent that this distribution occurs, therefore, the allocation of earnings is distorted away from efficient service to consumers.

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Therefore, we may say that all cases of subsidy coercively penalize the efficient for the benefit of the inefficient.

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Subsidies consequently prolong the life of inefficient firms at the expense of efficient ones, distort the productive system, and hamper the mobility of factors from less to more value-productive locations.

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They injure the market greatly and prevent the full satisfaction of consumer wants.

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Suppose, for example, an entrepreneur is sustaining losses in some industry, or the owner of a

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factor is earning a very low sum there.

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On the market, the factor owner would shift to a more value-productive industry, where

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both the owner of the factor and the consumers would be better served.

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If the government subsidizes him where he is, however, the life of inefficient firms

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is prolonged and factors are encouraged not to enter their most value-productive uses.

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The greater the extent of government subsidy in the economy, therefore, the more the market

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is prevented from working, and the more inefficient will the market be in catering to consumer

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wants.

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Hence, the greater the government subsidy, the lower will be the standard of living of

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everyone.

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On the free market, as we have seen, there is a harmony of interests, for everyone demonstrably

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gains in utility from market exchange.

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Where government intervenes, on the other hand, caste conflict is thereby created, for

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one man benefits at the expense of another.

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This is most clearly seen in the case of government transfer subsidies paid from tax or inflation

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funds, an obvious taking from Peter to give to Paul.

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Let the subsidy method become general then and everyone will rush to gain control of

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the government.

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Production will be more and more neglected as people divert their energies to the political

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struggles, to the scramble for loot.

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It is obvious that production and general living standards are lowered in two ways.

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One, by the diversion of energy from production to politics, and two, by the fact that the

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government inevitably burdens the producers with the incubus of an inefficient privileged

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group.

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The inefficient achieve a legal claim to ride herd on the efficient.

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This is all the more true since those who succeed in any occupation will inevitably

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tend to be those who are best at it.

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Those who succeed on the free market in economic life will therefore be those most adept at

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production and at serving their fellow men.

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Those who succeed in the political struggle will be those most adept at employing coercion

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and Winning Favors from Wielders of Coercion.

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Generally, different people will be adept at these different tasks, in accordance with

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universal specialization and the division of labor, and hence the shackling of one set

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of people will be done for the benefit of another set.

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But perhaps it will be argued that the same people will be efficient at both activities,

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and that therefore there will be no exploitation of one group at the expense of another.

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As we have said, this is hardly likely.

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If true, the subsidy system would die out, because it would be pointless for a group

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to pay the government to subsidize itself.

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But further, the subsidy system would promote the predatory skills of these individuals

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and penalize their productive ones.

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In sum, governmental subsidy systems promote inefficiency in production and efficiency in

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coercion and subservience, while penalizing efficiency in production and inefficiency

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in predation.

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Those people who ethically favor voluntary production can gauge which system, the free

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Every market or subsidies scores the higher economic marks, while those who favor conquest

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and confiscation must at least reckon with the overall loss of production that their policy

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brings about.

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This analysis applies to all forms of government subsidies, including grants of monopolistic

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privilege to favored producers.

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A common example of direct transfer subsidies is governmental poor relief.

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State poor relief is clearly a subsidization of poverty.

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Men are now automatically entitled to money from the state because of their poverty.

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Hence, the marginal disutility of income foregone from leisure diminishes, and idleness and

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poverty tend to increase.

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Thus, state subsidization of poverty tends to increase poverty, which in turn increases

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the amount of subsidy paid and extracted from those who are not impoverished.

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When, as is generally the case, the amount of subsidy depends directly on the number

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of children possessed by the pauper, there is a further incentive for the pauper to have

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more children than otherwise, since he is assured of a proportionate subsidy by the state.

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Consequently, the number of paupers tends to multiply still further.

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As Thomas McKay aptly stated, the cause of pauperism is relief.

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We shall not get rid of pauperism by extending the sphere of state relief.

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On the contrary, its adoption would increase our pauperism, for, as is often said, we can

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have exactly as many paupers as the country chooses to pay for.

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Private charity to the poor, on the other hand, does not have the same effect, for the

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poor would not have a compulsory and unlimited claim on the rich.

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Instead, charity is a voluntary and flexible act of grace on the part of the giver.

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The sincerity of government's desire to promote charity may be gauged by two perennial governmental

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drives, one to suppress charity rackets and the other to drive individual beggars off

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the streets because the government makes plenty of provision for them.

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From the following admiring anecdote of such a drive, the reader can gauge just who was

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the true friend of the poor organ grinder, his customer or the government.

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During a similar campaign to clean up the streets of organ grinders, most of whom were

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simply licensed beggars, a woman came up to LaGuardia at a social function and begged

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him not to deprive her of her favorite organ grinder.

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Where do you live, he asked her, on Park Avenue?

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LaGuardia successfully pushed through his plan to eliminate the organ grinders and the

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peddlers, despite the pleas of the penthouse slummers.

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The effect of both measures is to suppress voluntary individual gifts of charity and

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to force the public to root its giving into those channels approved by and tied in with

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government officialdom.

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Similarly, unemployment relief, instead of helping to cure unemployment as often is imagined,

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actually subsidizes and intensifies it.

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We have seen that unemployment arises when laborers or unions set a minimum wage above

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what they can obtain on the free market.

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The tax aid helps them to keep this unrealistic minimum and hence prolongs the period in which they can continue to withhold their labor from the market.

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2. Resource Using Activities, Government Ownership versus Private Ownership

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The bulk of government activities use resources, redirecting factors of production to government

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chosen ends.

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These activities generally involve the real or supposed supply of services by government

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to some or all of the populace.

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Government functions here as an owner and enterpriser.

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Investments using expenditures by government are often considered investment, and this

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classification forms an essential part of the Keynesian doctrine.

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We have argued that on the contrary, all of this expenditure must be considered consumption.

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Investment occurs where producers' goods are bought by entrepreneurs, not at all for

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for their own use or satisfaction, but merely to reshape and resell them to others, ultimately

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to the consumers.

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But government redirects the resources of society to its ends, chosen by it and backed

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by the use of force.

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Hence, these purchases must be considered consumption expenditures, whatever their intention

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or physical result.

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They are a particularly wasteful form of consumption, however, since they are generally not regarded

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as consumption expenditures by government officials.

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Government enterprises may either provide free services or charge a price or fee to

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users.

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Free services are particularly characteristic of government.

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Service and Military Protection, Firefighting, Education, Some Water Supply come to mind

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as examples.

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The first point to note, of course, is that these services are not and cannot be truly

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free.

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A free good would not be a good, and thus not an object of human action.

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It would exist in abundance for all.

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If a good does not exist plentifully for all, then the resource is scarce, and supplying

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it costs society other goods foregone.

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Hence, it cannot be free.

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The resources needed to supply the free governmental service are extracted from the rest of production.

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Payment is made, however, not by users on the basis of their voluntary purchases, but

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by a coerced levy on the taxpayers. A basic split is affected between payment for and

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receipt of service. Many grave consequences follow from this split and from the free service.

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As in all cases where price is below the free market price, an enormous and excessive demand

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is stimulated for the good, far beyond the supply of such service available.

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Consequently, there will always be shortages of the free good, constant complaints of insufficiency,

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overcrowding, etc.

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To illustrate, we need only cite such common conditions as police shortages, particularly

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in crime-ridden districts, teacher and school shortages in the public school system, traffic

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jams on government-owned streets and highways, etc.

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In no area of the free market are there chronic complaints about shortages and insufficiencies.

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In all areas of private enterprise, firms try to coax and persuade consumers to buy

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more of their product.

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Where government owns, on the other hand, there are invariably calls on consumers for

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for Patience and Sacrifice and there are continual problems of shortages and deficiencies.

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It is doubtful if any private enterprise would ever do what the government of New York and

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other cities have done, exhort the consumers to use less water.

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It is also characteristic of government operation that when a water shortage develops, it is

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is the consumers and not the government enterprises who are blamed for the shortage.

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The pressure is on consumers to sacrifice and use less, while in private industry the

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welcome pressure is on entrepreneurs to supply more.

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The well-known inefficiencies of government operation are not empirical accidents, resulting

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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.

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Thus, free supply not only subsidizes the users at the expense of non-using taxpayers,

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it also misallocates resources by failing to supply the service where it is most needed.

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The same is true to a lesser extent wherever the price is under the free market price.

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On the free market, consumers can dictate the pricing, and thereby assure the best allocation

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of productive resources to supply their wants.

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In a government enterprise, this cannot be done.

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Let us take again the case of the free service.

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Since there is no pricing, and therefore no exclusion of sub-marginal uses, there is no

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No way that government, even if it wanted to, could allocate its services to the most

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important uses and to the most eager buyers.

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All buyers, all uses, are artificially kept on the same plane.

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As a result, the most important uses will be slighted, and the government is faced with

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with insuperable allocation problems which it cannot solve even to its own satisfaction.

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Thus, the government will be confronted with the problem, should we build a road in place

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A or place B?

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There is no rational way by which it can make this decision.

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It cannot aid the private consumers of the road in the best way.

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Government can decide only according to the whim of the ruling government official.

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That is, only if the government official, not the public, does the consuming.

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If the government wishes to do what is best for the public, it is faced with an impossible

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task.

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Government can either deliberately subsidize by giving a service away free, or it may genuinely

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try to find the true market price, that is, to operate on a business basis.

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This is often the cry raised by conservatives, that government enterprise be placed on a

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business footing, that deficits be ended, etc.

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Almost always this means raising the price.

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Is this a solution, however?

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It is often stated that a single government enterprise operating within the sphere of

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a private market, buying from it, etc., can price its services and allocate its resources

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efficiently.

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This however is incorrect.

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There is a fatal flaw that permeates every conceivable scheme of government enterprise

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and ineluctably prevents it from rational pricing and efficient allocation of resources.

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Because of this flaw, government enterprise can never be operated on a business basis,

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no matter what the government's intentions.

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What is this fatal flaw?

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It is the fact that government can obtain virtually unlimited resources by means of its

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It's coercive tax power.

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Private businesses must obtain their funds from investors.

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It is this allocation of funds by investors on the basis of time preference and foresight

229
00:23:16.500 --> 00:23:23.700
that rations funds and resources to the most profitable and therefore the most serviceable

230
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uses.

231
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Private firms can get funds only from consumers and investors.

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They can get funds, in other words, only from people who value and buy their services, and

233
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from investors who are willing to risk investment of their saved funds in anticipation of profit.

234
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In short, payment and service are, once again, indissolubly linked on the market.

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Government, on the other hand, can get as much money as it likes.

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The free market provides a mechanism for allocating funds for future and present consumption,

237
00:24:06.560 --> 00:24:12.720
for directing resources to their most value-productive uses for all the people.

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It thereby provides a means for businessmen to allocate resources and to price services

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00:24:20.000 --> 00:24:22.840
to ensure such optimum use.

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Government, however, has no check reign on itself, that is, no requirement for meeting

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a profit and loss test of valued service to consumers to enable it to obtain funds.

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Private enterprise can get funds only from satisfied valuing customers and from investors

243
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guided by profits and losses.

244
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Government can get funds literally at its own whim.

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With the check rain gone, gone also is any opportunity for government to allocate resources

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rationally.

247
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How can it know whether to build road A or road B, whether to invest in a road or a school?

248
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In fact, how much to spend for all its activities?

249
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There is no rational way that it can allocate funds or even decide how much to have.

250
00:25:23.100 --> 00:25:29.360
When there is a shortage of teachers or school rooms or police or streets, the government

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and its supporters have only one answer, more money.

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The people must relinquish more of their money to the government.

253
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Why is this answer never offered on the free market?

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The reason is that money must be withdrawn from some other use in consumption or investment,

255
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and this withdrawal must be justified.

256
00:25:54.160 --> 00:26:00.440
This justification is provided by the test of profit and loss, the indication that the

257
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most urgent wants of the consumers are being satisfied.

258
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If an enterprise or product is earning high profits for its owners, and these profits

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00:26:11.400 --> 00:26:20.680
are expected to continue, more money will be forthcoming. If not and losses are being incurred,

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00:26:20.680 --> 00:26:28.920
money will flow out of the industry. The profit and loss test serves as the critical guide for

261
00:26:28.920 --> 00:26:35.800
directing the flow of productive resources. No such guide exists for the government,

262
00:26:35.800 --> 00:26:45.000
Which has no rational way to decide how much money to spend, either in total or in each specific line.

263
00:26:45.000 --> 00:26:52.360
The more money it spends, the more service it can supply. But where to stop?

264
00:26:52.360 --> 00:26:59.240
Proponents of government enterprise may retort that the government could simply tell its bureau

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to act as if it were a profit-making enterprise, and to establish itself in the same way as

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a private business.

267
00:27:08.660 --> 00:27:11.160
There are two flaws in this theory.

268
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First, it is impossible to play enterprise.

269
00:27:16.320 --> 00:27:21.560
Enterprise means risking one's own money in investment.

270
00:27:21.560 --> 00:27:27.320
Bureaucratic managers and politicians have no real incentive to develop entrepreneurial

271
00:27:27.320 --> 00:27:31.320
to really adjust to consumer demands.

272
00:27:31.320 --> 00:27:36.320
They do not risk loss of their money in the enterprise.

273
00:27:36.320 --> 00:27:45.320
Secondly, aside from the question of incentives, even the most eager managers could not function as a business.

274
00:27:45.320 --> 00:27:51.320
Regardless of the treatment accorded the operation after it is established,

275
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the initial launching of the firm is made with government money

276
00:27:56.320 --> 00:27:59.320
and therefore by coercive levy.

277
00:27:59.320 --> 00:28:05.320
An arbitrary element has been built into the very vitals of the enterprise.

278
00:28:05.320 --> 00:28:11.320
Further, any future expenditures may be made out of tax funds

279
00:28:11.320 --> 00:28:16.320
and therefore the decisions of the managers will be subject to the same flaw.

280
00:28:16.320 --> 00:28:24.320
The ease of obtaining money will inherently distort the operations of the government enterprise.

281
00:28:24.320 --> 00:28:29.320
Moreover, suppose the government invests in an enterprise.

282
00:28:29.320 --> 00:28:36.080
E. Either the free market, left alone, would also have invested the same amount in the

283
00:28:36.080 --> 00:28:39.900
self-same enterprise, or it would not.

284
00:28:39.900 --> 00:28:47.200
If it would have, then the economy suffers at least from the take going to the intermediary

285
00:28:47.200 --> 00:28:48.680
bureaucracy.

286
00:28:48.680 --> 00:28:55.040
If not, and this is almost certain, then it follows immediately that the expenditure on

287
00:28:55.040 --> 00:29:01.860
E is a distortion of private utility on the market, that some other expenditure would

288
00:29:01.860 --> 00:29:04.960
have greater monetary returns.

289
00:29:04.960 --> 00:29:11.480
It follows once again that a government enterprise cannot duplicate the conditions of private

290
00:29:11.480 --> 00:29:13.480
business.

291
00:29:13.480 --> 00:29:19.180
In addition, the establishment of government enterprise creates an inherent competitive

292
00:29:19.180 --> 00:29:27.040
advantage over private firms, for at least part of its capital was gained by coercion

293
00:29:27.040 --> 00:29:29.140
rather than service.

294
00:29:29.140 --> 00:29:35.660
It is clear that government, with its subsidization, if it wishes, can drive private business out

295
00:29:35.660 --> 00:29:37.480
of the field.

296
00:29:37.480 --> 00:29:43.080
Private investment in the same industry will be greatly restricted, since future investors

297
00:29:43.080 --> 00:29:48.920
Those will anticipate losses at the hands of the privileged governmental competitors.

298
00:29:48.920 --> 00:29:55.980
Moreover, since all services compete for the consumer's dollar, all private firms and

299
00:29:55.980 --> 00:30:02.260
all private investment will to some degree be affected and hampered.

300
00:30:02.260 --> 00:30:08.320
And when a government enterprise opens, it generates fears in other industries that they

301
00:30:08.320 --> 00:30:14.520
They will be next, and that they will be either confiscated or forced to compete with government

302
00:30:14.520 --> 00:30:17.120
subsidized enterprises.

303
00:30:17.120 --> 00:30:23.780
This fear tends to repress productive investment further, and thus lower the general standard

304
00:30:23.780 --> 00:30:26.720
of living still more.

305
00:30:26.720 --> 00:30:32.160
The clinching argument, and one that is used quite correctly by opponents of government

306
00:30:32.160 --> 00:30:39.040
Government Ownership is, if business operation is so desirable, why take such a tortuous

307
00:30:39.040 --> 00:30:40.040
route?

308
00:30:40.040 --> 00:30:45.900
Why not scrap government ownership and turn the operation over to private enterprise?

309
00:30:45.900 --> 00:30:53.080
Why go to such lengths to try to imitate the apparent ideal, private ownership, when the

310
00:30:53.080 --> 00:30:56.520
ideal may be pursued directly?

311
00:30:56.520 --> 00:31:02.320
The plea for business principles in government, therefore, makes little sense, even if it

312
00:31:02.320 --> 00:31:04.960
could be successful.

313
00:31:04.960 --> 00:31:11.160
The inefficiencies of government operation are compounded by several other factors.

314
00:31:11.160 --> 00:31:18.160
As we have seen, a government enterprise competing in an industry can usually drive out private

315
00:31:18.160 --> 00:31:24.720
owners, since the government can subsidize itself in many ways and supply itself with

316
00:31:24.720 --> 00:31:31.540
with unlimited funds when desired, thus it has little incentive to be efficient.

317
00:31:31.540 --> 00:31:38.680
In cases where it cannot compete, even under these conditions, it can arrogate to itself

318
00:31:38.680 --> 00:31:44.260
a compulsory monopoly, driving out competitors by force.

319
00:31:44.260 --> 00:31:48.920
This was done in the United States, in the case of the post office.

320
00:31:48.920 --> 00:31:56.580
When the government thus grants itself a monopoly, it may go to the other extreme from free service.

321
00:31:56.580 --> 00:32:00.000
It may charge a monopoly price.

322
00:32:00.000 --> 00:32:06.900
Charging a monopoly price, identifiably different from a free market price, distorts resources

323
00:32:06.900 --> 00:32:12.540
again, and creates an artificial scarcity of the particular good.

324
00:32:12.540 --> 00:32:17.400
It also permits an enormously lowered quality of service.

325
00:32:17.400 --> 00:32:24.600
A governmental monopoly need not worry that customers may go elsewhere or that inefficiency

326
00:32:24.600 --> 00:32:27.180
may mean its demise.

327
00:32:27.180 --> 00:32:34.760
Only governments can make self-satisfied announcements of cuts in service to affect economies.

328
00:32:34.760 --> 00:32:41.960
In private business, economies must be made as a corollary of improvements in service.

329
00:32:41.960 --> 00:32:48.680
A recent example of governmental cuts is the decline in American postal deliveries, joined

330
00:32:48.680 --> 00:32:52.220
of course with requests for higher rates.

331
00:32:52.220 --> 00:32:59.860
When France nationalized the important Western railway system in 1908, freight was increasingly

332
00:32:59.860 --> 00:33:00.860
damaged.

333
00:33:00.860 --> 00:33:07.480
Trains slowed down, and accidents grew to such an extent that an economist caustically

334
00:33:07.480 --> 00:33:15.840
observed that the French government had added railway accidents to its growing list of monopolies.

335
00:33:15.840 --> 00:33:22.120
A further reason for governmental inefficiency has been touched on already that the personnel

336
00:33:22.120 --> 00:33:25.840
have no incentive to be efficient.

337
00:33:25.840 --> 00:33:33.040
In fact, the skills they will develop will not be the economic skills of production,

338
00:33:33.040 --> 00:34:02.000
Hayek showed us that the worst get on top in a collectivist regime.

339
00:34:02.000 --> 00:34:07.140
This is true for any government-run enterprise, however.

340
00:34:07.140 --> 00:34:14.480
For our purposes, we may excise the moral evaluation and say that, for any task, those

341
00:34:14.480 --> 00:34:21.600
who get on top will be those with the most skill in that particular task, a praxeological

342
00:34:21.600 --> 00:34:22.680
law.

343
00:34:22.680 --> 00:34:29.440
The difference is that the market promotes and rewards the skills of production and voluntary

344
00:34:29.440 --> 00:34:36.520
Cooperation, Government Enterprise Promotes the Skills of Mass Coercion and Bureaucratic

345
00:34:36.520 --> 00:34:38.280
Submission.

346
00:34:38.280 --> 00:34:45.040
On the market, workers get paid in accordance with their discounted marginal value product.

347
00:34:45.040 --> 00:34:51.640
But in a government enterprise, which can charge any price it pleases, there is no discernible

348
00:34:51.640 --> 00:34:58.920
value product, and workers are hired and paid according to the personal charm or political

349
00:34:58.920 --> 00:35:11.160
It is particularly absurd to call for business principles where a government enterprise functions

350
00:35:11.160 --> 00:35:12.760
as a monopoly.

351
00:35:12.760 --> 00:35:19.120
Periodically there are demands that the post office be put on a business basis and end

352
00:35:19.120 --> 00:35:23.380
its deficit, which must be paid by the taxpayers.

353
00:35:23.380 --> 00:35:30.020
But ending the deficit of an inherently and necessarily inefficient government operation

354
00:35:30.020 --> 00:35:33.880
does not mean going on a business basis.

355
00:35:33.880 --> 00:35:40.740
In order to do so, the price must be raised high enough to achieve a monopoly price, and

356
00:35:40.740 --> 00:35:44.620
thus cover the costs of the government's inefficiencies.

357
00:35:44.620 --> 00:35:51.180
A monopoly price will levy an excessive burden on the users of the postal service, especially

358
00:35:51.180 --> 00:35:53.180
The Theory of Money and Credit

359
00:36:21.180 --> 00:36:38.180
The New York subway system in recent years, which has been raising its fares in a vain attempt to end its deficit, only to see passenger volume fall so drastically that the deficit increased even further after a time.

360
00:36:38.180 --> 00:36:49.180
Ironically enough, the higher fares have driven many customers to buying and driving their own cars, thus aggravating the perennial traffic problem,

361
00:36:49.180 --> 00:36:55.460
Scarcity of Government Street Space, another example of government intervention creating

362
00:36:55.460 --> 00:36:59.780
and multiplying its own difficulties.

363
00:36:59.780 --> 00:37:07.300
Many criteria have been offered by writers as guides for the pricing of government services.

364
00:37:07.300 --> 00:37:12.340
One criterion supports pricing according to marginal cost.

365
00:37:12.340 --> 00:37:22.740
However, this is hardly a criterion at all, and rests on classical economic fallacies of price determination by costs.

366
00:37:22.740 --> 00:37:28.820
For one thing, marginal varies according to the period of time surveyed.

367
00:37:28.820 --> 00:37:33.060
Furthermore, costs are not static, but flexible.

368
00:37:33.060 --> 00:37:40.900
They change according to selling prices, and hence cannot be used as a guide to those prices.

369
00:37:40.900 --> 00:37:56.900
Moreover, prices equal average costs, or rather, average costs equal prices, only in final equilibrium, and equilibrium cannot be regarded as an ideal for the real world.

370
00:37:56.900 --> 00:38:00.900
The market only tends toward this goal.

371
00:38:00.900 --> 00:38:08.900
Finally, costs of government operation will be higher than for a similar operation on the free market.

372
00:38:08.900 --> 00:38:25.900
Government enterprise will not only hamper and repress private investment and entrepreneurship in the same industry, and in industries throughout the economy, it will also disrupt the entire labor market.

373
00:38:25.900 --> 00:38:37.900
For A. The government will decrease production and living standards in the society by siphoning off potentially productive labor to the bureaucracy.

374
00:38:37.900 --> 00:38:54.900
B. In using confiscated funds, the government will be able to pay more than the market rate for labor, and hence set up a clamor by government job seekers for an expansion of the unproductive bureaucratic machine.

375
00:38:54.900 --> 00:39:11.900
And, c, through high tax-supported wages, the government may well mislead workers and unions into believing that this reflects the market wage in private industry, thereby causing unwanted unemployment.

376
00:39:11.900 --> 00:39:23.900
Moreover, government enterprise basing itself on coercion over the consumer can hardly fail to substitute its own values for those of its customers.

377
00:39:23.900 --> 00:39:45.900
Hence, artificially standardized services of poorer quality, fashioned to governmental taste and convenience, will hold sway, in contrast to those of the free market, where diversified services of high quality are supplied to fit the varied tastes of a multitude of individuals.

378
00:39:46.900 --> 00:39:52.900
Governments, despite bickering before a decision, generally end up speaking with a single voice.

379
00:39:53.900 --> 00:39:59.380
This is true of the executive and judicial arms, which are organized like a military

380
00:39:59.380 --> 00:40:06.020
force with command from the top down, and of the legislative arm, where the majority

381
00:40:06.020 --> 00:40:09.420
may impose its will.

382
00:40:09.420 --> 00:40:16.940
One cartel or one firm could not own all the means of production in the economy because

383
00:40:16.940 --> 00:40:23.380
it could not calculate prices and allocate factors in a rational manner.

384
00:40:23.380 --> 00:40:30.280
This is the reason why state socialism could not plan or allocate rationally either.

385
00:40:30.280 --> 00:40:37.660
In fact, even two or more stages could not be completely integrated vertically on the

386
00:40:37.660 --> 00:40:43.900
market, for total integration would eliminate a whole segment of the market and establish

387
00:40:43.900 --> 00:40:51.460
an island of calculational and allocational chaos, an island that would preclude optimal

388
00:40:51.460 --> 00:40:57.940
Capital Planning for Profits and Maximum Satisfaction for the Consumers.

389
00:40:57.940 --> 00:41:05.060
In the case of simple government ownership, still another extension of this thesis unfolds.

390
00:41:05.060 --> 00:41:12.160
For each governmental firm introduces its own island of chaos into the economy, there

391
00:41:12.160 --> 00:41:17.640
is no need to wait for socialism for chaos to begin its work.

392
00:41:17.640 --> 00:41:25.560
No government enterprise can ever determine prices or costs, or allocate factors or funds

393
00:41:25.560 --> 00:41:29.580
in a rational, welfare-maximizing manner.

394
00:41:29.580 --> 00:41:37.080
No government enterprise can be established on a business basis, even if the desire were

395
00:41:37.080 --> 00:41:38.080
present.

396
00:41:38.080 --> 00:41:45.880
Thus, any government operation injects a point of chaos into the economy, and since all markets

397
00:41:45.880 --> 00:41:53.680
are interconnected in the economy, every governmental activity disrupts and distorts pricing, the

398
00:41:53.680 --> 00:41:59.960
allocation of factors, consumption investment ratios, etc.

399
00:41:59.960 --> 00:42:06.620
Every government enterprise not only lowers the social utilities of the consumers by forcing

400
00:42:06.620 --> 00:42:13.480
the allocation of funds to ends other than those desired by the public, it also lowers

401
00:42:13.480 --> 00:42:19.880
Use the utility of everyone, including, perhaps, the utilities of government officials, by

402
00:42:19.880 --> 00:42:24.860
distorting the market and spreading calculational chaos.

403
00:42:24.860 --> 00:42:30.960
The greater the extent of government ownership, of course, the more pronounced will this impact

404
00:42:30.960 --> 00:42:32.680
become.

405
00:42:32.680 --> 00:42:39.520
Aside from its purely economic consequences, government ownership has another kind of impact

406
00:42:39.520 --> 00:42:41.100
on society.

407
00:42:41.100 --> 00:42:47.100
It necessarily substitutes conflict for the harmony of the free market.

408
00:42:47.100 --> 00:42:53.820
Since government service means service by one set of decision-makers, it comes to mean

409
00:42:53.820 --> 00:42:55.980
uniform service.

410
00:42:55.980 --> 00:43:03.580
The desires of all those forced, directly or indirectly, to pay for the government service

411
00:43:03.580 --> 00:43:06.040
cannot be satisfied.

412
00:43:06.040 --> 00:43:12.800
Only some forms of the service can or will be produced by the government agency.

413
00:43:12.800 --> 00:43:19.880
As a result, government enterprise creates enormous caste conflicts among the citizens,

414
00:43:19.880 --> 00:43:25.400
each of whom has a different idea on the best form of service.

415
00:43:25.400 --> 00:43:31.880
In recent years, government schools in America have furnished a striking example of such

416
00:43:31.880 --> 00:43:32.880
conflicts.

417
00:43:32.880 --> 00:43:39.640
Some parents prefer racially segregated schools, others prefer integrated education.

418
00:43:39.640 --> 00:43:43.260
Some parents want their children taught socialism.

419
00:43:43.260 --> 00:43:47.000
Others want anti-socialist teaching in the schools.

420
00:43:47.000 --> 00:43:51.640
There is no way that government can resolve these conflicts.

421
00:43:51.640 --> 00:43:59.200
It can only impose the will of the majority, or a bureaucratic interpretation of it, by

422
00:43:59.200 --> 00:44:06.200
by coercion and leave an often large minority dissatisfied and unhappy.

423
00:44:06.200 --> 00:44:12.200
Whichever type of school is chosen, some groups of parents will suffer.

424
00:44:12.200 --> 00:44:20.200
On the other hand, there is no such conflict on the free market, which provides any type of service demanded.

425
00:44:20.200 --> 00:44:27.200
On the market, those who want segregated or integrated, socialist or individualist schools

426
00:44:27.200 --> 00:44:34.200
The degrees of government ownership in the economy vary from one country to another, but in all countries, the state has made sure that it owns the vital nerve centers, the command posts of the society.

427
00:44:57.200 --> 00:45:14.200
It has acquired compulsory monopoly ownership over these command posts, and it has always tried to convince the populace that private ownership and enterprise in these fields is simply and a priori impossible.

428
00:45:14.200 --> 00:45:21.200
We have seen on the contrary that every service can be supplied on the free market.

429
00:45:21.200 --> 00:45:28.200
The vital command posts invariably owned monopolistically by the state are

430
00:45:28.200 --> 00:45:31.200
1. Police and military protection

431
00:45:31.200 --> 00:45:34.200
2. Judicial protection

432
00:45:34.200 --> 00:45:39.200
3. Monopoly of the mint and monopoly of defining money

433
00:45:39.200 --> 00:45:43.200
4. Rivers and coastal seas

434
00:45:43.200 --> 00:45:48.200
5. Urban streets and highways and land generally

435
00:45:48.200 --> 00:45:56.200
Unused land, in addition to the power of eminent domain, The Post Office

436
00:45:56.200 --> 00:46:01.200
The defense function is the one reserved most jealously by the state.

437
00:46:01.200 --> 00:46:08.200
It is vital to the state's existence, for on its monopoly of force depends its ability

438
00:46:08.200 --> 00:46:11.200
to exact taxes from the citizens.

439
00:46:11.200 --> 00:46:17.200
If citizens were permitted privately owned courts and armies, then they would possess

440
00:46:17.200 --> 00:46:46.200
The Post Office has always been a very convenient tool for the inspection and prohibition of messages by heretics or enemies of the state.

441
00:46:46.200 --> 00:46:53.960
In recent years, the state has constantly sought to expand these outposts. Monopoly of the mint

442
00:46:53.960 --> 00:47:01.000
and of the definition of money, legal tender laws, has been used to achieve full control of

443
00:47:01.000 --> 00:47:08.120
the nation's monetary system. This was one of the state's most difficult tasks since for centuries

444
00:47:08.120 --> 00:47:14.920
paper money was thoroughly distrusted by the people. Monopoly over the mint and the definition

445
00:47:14.920 --> 00:47:20.400
The creation of monetary standards has led to the debasement of the coinage, a shift

446
00:47:20.400 --> 00:47:26.800
of monetary names from units of weight to meaningless terms, and the replacement of

447
00:47:26.800 --> 00:47:31.200
gold and silver by bank or government paper.

448
00:47:31.200 --> 00:47:38.080
At present, the state in nearly every country has achieved its major monetary goal, the

449
00:47:38.080 --> 00:47:43.760
ability to expand its revenue by inflating the currency at will.

450
00:47:43.760 --> 00:47:51.000
In the other areas, land and natural resources, transportation and communication, the state

451
00:47:51.000 --> 00:47:54.120
is more and more in control.

452
00:47:54.120 --> 00:48:01.080
Finally, another critical command post held, though not wholly monopolized by the state,

453
00:48:01.080 --> 00:48:08.280
is education, for government schooling permits influencing the youthful mind to accept the

454
00:48:08.280 --> 00:48:13.040
virtues of the government and of government intervention.

455
00:48:13.040 --> 00:48:18.720
Those defenders of the free market who attack socialistic teaching in the government schools

456
00:48:18.720 --> 00:48:20.760
are tilting at windmills.

457
00:48:20.760 --> 00:48:27.800
The very fact that a government school exists and is therefore presumed to be good teaches

458
00:48:27.800 --> 00:48:33.720
its little charges the virtues of government ownership, regardless of what is formally

459
00:48:33.720 --> 00:48:35.800
taught in textbooks.

460
00:48:35.800 --> 00:48:41.420
And if government ownership is preferable in schooling, why not in other educational

461
00:48:41.420 --> 00:48:54.140
In many countries, the government does not have a compulsory monopoly of schooling, but

462
00:48:54.140 --> 00:49:01.900
it approaches this ideal by compelling attendance of all children at either a government school

463
00:49:01.900 --> 00:49:08.100
or a private school approved or accredited by government.

464
00:49:08.100 --> 00:49:14.100
Governmentary attendance herds into the schools those who do not desire schooling, and thus

465
00:49:14.100 --> 00:49:18.000
drives too many children into education.

466
00:49:18.000 --> 00:49:24.940
Too few youngsters remain in such competing fields as leisure, home study and business

467
00:49:24.940 --> 00:49:26.700
employment.

468
00:49:26.700 --> 00:49:33.060
One very curious governmental activity has grown enormously in the present century.

469
00:49:33.060 --> 00:49:39.940
Its great popularity is a notable indication of widespread popular ignorance of praxeological

470
00:49:39.940 --> 00:49:40.940
law.

471
00:49:40.940 --> 00:49:46.040
We are referring to what is called social security legislation.

472
00:49:46.040 --> 00:49:52.900
This system confiscates the income of the poorer wage earners and then presumes to invest

473
00:49:52.900 --> 00:49:59.540
the money more wisely than they could themselves, later paying out the money to them or their

474
00:49:59.540 --> 00:50:02.540
and their beneficiaries in their old age.

475
00:50:02.540 --> 00:50:08.540
Considered as social insurance, this is a typical example of government enterprise.

476
00:50:08.540 --> 00:50:12.540
There is no relation between premiums and benefits,

477
00:50:12.540 --> 00:50:17.540
both changing yearly under the impact of political pressures.

478
00:50:17.540 --> 00:50:22.540
On the free market, anyone who wishes to invest in an insurance annuity

479
00:50:22.540 --> 00:50:26.540
or in stocks or real estate may do so,

480
00:50:26.540 --> 00:50:34.540
Compelling everyone to transfer his funds to the government forces him to lose utility.

481
00:50:34.540 --> 00:50:40.740
Thus even on its face, it is difficult to understand the great popularity of the social

482
00:50:40.740 --> 00:50:42.580
security system.

483
00:50:42.580 --> 00:50:48.240
But the true nature of the operation differs greatly from its official image.

484
00:50:48.240 --> 00:50:53.640
For the government does not invest the funds it takes in taxes.

485
00:50:53.640 --> 00:51:00.040
It simply spends them, giving itself bonds, which must be later cashed when the benefits

486
00:51:00.040 --> 00:51:01.480
fall due.

487
00:51:01.480 --> 00:51:04.720
How will the cash then be obtained?

488
00:51:04.720 --> 00:51:07.720
Only from further taxes or inflation.

489
00:51:07.720 --> 00:51:12.880
Thus, the public must pay twice for Social Security.

490
00:51:12.880 --> 00:51:18.080
The Social Security program taxes twice for one payment.

491
00:51:18.080 --> 00:51:25.680
It is a device to permit palatable taxation of the lower income groups by the government,

492
00:51:25.680 --> 00:51:32.860
and as is true of all taxes, the proceeds go into governmental consumption.

493
00:51:32.860 --> 00:51:39.680
In weighing the question of private or governmental ownership of any enterprise, then, one should

494
00:51:39.680 --> 00:51:44.200
keep in mind the following conclusions of our analysis.

495
00:51:44.200 --> 00:51:49.560
1. Every service can be supplied privately on the market.

496
00:51:49.560 --> 00:51:57.960
2. Private ownership will be more efficient in providing better quality of service at lower cost.

497
00:51:57.960 --> 00:52:05.880
3. Allocation of resources in a private enterprise will better satisfy consumer demands,

498
00:52:05.880 --> 00:52:13.880
while government enterprise will distort allocations and introduce islands of calculational chaos.

499
00:52:13.880 --> 00:52:22.120
4. Government ownership will repress private activity in non-competing as well as competing

500
00:52:22.120 --> 00:52:31.000
firms. 5. Private ownership ensures the harmonious and cooperative satisfaction of desires,

501
00:52:31.000 --> 00:52:39.800
while government ownership creates caste conflict. Various other criteria advanced to decide between

502
00:52:39.800 --> 00:52:46.600
Private and State Action are fallacious, thus a common rule states that government should weigh

503
00:52:47.160 --> 00:52:54.920
marginal social costs against marginal social benefits in making a decision. But aside from

504
00:52:54.920 --> 00:53:03.000
many other flaws, there is no such thing as society apart from constituent individuals,

505
00:53:03.000 --> 00:53:20.120
Socialism or Collectivism occurs when the state owns all the means of production.

506
00:53:20.120 --> 00:53:26.880
It is the compulsory abolition and prohibition of private enterprise and the monopolization

507
00:53:26.880 --> 00:53:31.720
of the entire productive sphere by the state.

508
00:53:31.720 --> 00:53:37.480
The system, therefore, extends the principle of compulsory governmental monopoly from a

509
00:53:37.480 --> 00:53:42.680
few isolated enterprises to the whole economic system.

510
00:53:42.680 --> 00:53:47.100
It is the violent abolition of the market.

511
00:53:47.100 --> 00:53:54.200
If an economy is to exist at all, there must be production in order to satisfy the desires

512
00:53:54.200 --> 00:53:56.560
of the consuming individuals.

513
00:53:56.560 --> 00:53:59.740
How is this production to be organized?

514
00:53:59.740 --> 00:54:06.860
Who is to decide on the allocation of factors to all the various uses, or on the income

515
00:54:06.860 --> 00:54:10.540
each factor will receive in each use?

516
00:54:10.540 --> 00:54:16.940
There are two and only two ways that an economy can be organized.

517
00:54:16.940 --> 00:54:22.140
One is by freedom and voluntary choice, the way of the market.

518
00:54:22.140 --> 00:54:27.200
The other is by force and dictation, the way of the state.

519
00:54:27.200 --> 00:54:34.280
To those ignorant of economics, it may seem that only the latter constitutes real organization

520
00:54:34.280 --> 00:54:40.440
and planning, whereas the way of the market is only confusion and chaos.

521
00:54:40.440 --> 00:54:46.560
The organization of the free market, however, is actually an amazing and flexible means

522
00:54:46.560 --> 00:54:53.920
of satisfying the wants of all individuals, and one far more efficient than state operation

523
00:54:53.920 --> 00:54:56.280
or intervention.

524
00:54:56.280 --> 00:55:02.900
Up to this point, however, we have discussed only isolated government enterprises and various

525
00:55:02.900 --> 00:55:06.740
forms of government intervention in the market.

526
00:55:06.740 --> 00:55:14.600
We must now examine socialism, the system of pure government dictation, the polar opposite

527
00:55:14.600 --> 00:55:17.640
of the purely free market.

528
00:55:17.640 --> 00:55:23.220
We have defined ownership as the exclusive control of a resource.

529
00:55:23.220 --> 00:55:29.860
It is clear, therefore, that a planned economy, which leaves nominal ownership in the hands

530
00:55:29.860 --> 00:55:36.540
of the previous private owners, but which places the actual control and direction of

531
00:55:36.540 --> 00:55:44.140
resources in the hands of the state, is as much socialism as is the formal nationalization

532
00:55:44.140 --> 00:55:45.660
of property.

533
00:55:45.660 --> 00:55:52.700
The Nazi and fascist regimes were as socialist as the communist system that nationalizes

534
00:55:52.700 --> 00:56:12.700
Many people refuse to identify nazism or fascism as socialism, because they confine the latter term to Marxist or neo-Marxist proletarianism, or to various social-democratic proposals.

535
00:56:12.700 --> 00:56:19.380
But economics is not concerned with the color of the uniform or with the good or bad manners

536
00:56:19.380 --> 00:56:25.920
of the rulers, nor does it care which groups or classes are running the state in various

537
00:56:25.920 --> 00:56:28.040
political regimes.

538
00:56:28.040 --> 00:56:33.860
Neither does it matter for economics whether the socialist regime chooses its rulers by

539
00:56:33.860 --> 00:56:37.640
elections or by coup d'etat.

540
00:56:37.640 --> 00:56:45.240
This is concerned only with the powers of ownership or control that the state exercises.

541
00:56:45.240 --> 00:56:52.900
All forms of state planning of the whole economy are types of socialism, notwithstanding the

542
00:56:52.900 --> 00:56:59.480
philosophical or aesthetic viewpoints of the various socialist camps and regardless whether

543
00:56:59.480 --> 00:57:04.440
they are referred to as rightists or leftists.

544
00:57:04.440 --> 00:57:11.960
Freedom may be monarchical, it may be proletarian, it may equalize fortunes, it may increase

545
00:57:11.960 --> 00:57:21.720
inequality, its essence is always the same, total coercive state dictation over the economy.

546
00:57:21.720 --> 00:57:28.920
The distance between the poles of the purely free market on the one hand and total collectivism

547
00:57:28.920 --> 00:57:35.760
One on the other is a continuum involving different mixes of the freedom principle and

548
00:57:35.760 --> 00:57:39.120
the coercive hegemonic principle.

549
00:57:39.120 --> 00:57:47.920
Any increase of governmental ownership or control, therefore, is socialistic or collectivistic

550
00:57:47.920 --> 00:57:57.160
because it is a coercive intervention bringing the economy one step closer to complete socialism.

551
00:57:57.160 --> 00:58:04.360
The extent of collectivism in the 20th century is at once under and over estimated.

552
00:58:04.360 --> 00:58:11.720
On the one hand, its development in such countries as the United States is greatly underestimated.

553
00:58:11.720 --> 00:58:18.440
Most observers neglect, for example, the importance of the expansion of government lending.

554
00:58:18.440 --> 00:58:26.220
The lender is also an entrepreneur and part owner, regardless of his legal status.

555
00:58:26.220 --> 00:58:32.860
Government loans to private enterprise, therefore, or guarantees of private loans, create many

556
00:58:32.860 --> 00:58:35.500
centers of government ownership.

557
00:58:35.500 --> 00:58:42.100
Furthermore, the total quantity of savings in the economy is not increased by government

558
00:58:42.100 --> 00:58:47.900
guarantees and loans, but its specific form is changed.

559
00:58:47.900 --> 00:58:56.100
The free market tends to allocate social savings to their most profitable and productive channels.

560
00:58:56.100 --> 00:59:03.360
Government loans and guarantees, by contrast, divert savings from more to less productive

561
00:59:03.360 --> 00:59:04.720
channels.

562
00:59:04.720 --> 00:59:11.240
They also prevent the success of the most efficient entrepreneurs and the weeding out

563
00:59:11.240 --> 00:59:18.500
of the inefficient, who would then become simply labor factors rather than entrepreneurs.

564
00:59:18.500 --> 00:59:24.980
In both these ways, therefore, government lending lowers the general standard of living.

565
00:59:24.980 --> 00:59:31.500
To say nothing of the loss of utility inflicted on the taxpayers, who must make these pledges

566
00:59:31.500 --> 00:59:36.380
good or who supply the money to be loaned.

567
00:59:36.380 --> 00:59:43.820
On the other hand, the extent of socialism in such countries as Soviet Russia is overrated.

568
00:59:43.820 --> 00:59:50.700
Those people who point to Russia as an example of successful planning by the government ignore

569
00:59:50.700 --> 00:59:57.100
For the fact, aside from the planning difficulties constantly encountered, that Soviet Russia

570
00:59:57.100 --> 01:00:05.360
and other socialist countries cannot have full socialism because only domestic trade

571
01:00:05.360 --> 01:00:07.120
is socialized.

572
01:00:07.120 --> 01:00:11.380
The rest of the world still has a market of sorts.

573
01:00:11.380 --> 01:00:18.600
A socialist state, therefore, can still buy and sell on the world market and at least

574
01:00:18.600 --> 01:00:24.600
Socialists vaguely approximate the rational pricing of producers' goods by referring

575
01:00:24.600 --> 01:00:29.120
to the prices of factors set on the world market.

576
01:00:29.120 --> 01:00:36.880
Although the errors of even this partial socialist planning are impoverishing, they are insignificant

577
01:00:36.880 --> 01:00:45.100
compared to what would happen under the total calculational chaos of a world socialist state.

578
01:00:45.100 --> 01:00:52.940
One big cartel could not calculate and therefore could not be established on the free market.

579
01:00:52.940 --> 01:00:59.500
How much more does this apply to socialism, where the state imposes its overall monopoly

580
01:00:59.500 --> 01:01:08.660
by force and where the inefficiencies of a single state's actions are multiplied a thousandfold?

581
01:01:08.660 --> 01:01:14.820
One point should not be overlooked in the analysis of specific socialist regimes.

582
01:01:14.820 --> 01:01:22.780
The possibility of a black market, with resources passing illicitly into private hands.

583
01:01:22.780 --> 01:01:29.340
This differs completely from the artificial play at markets advocated by some writers

584
01:01:29.340 --> 01:01:33.460
as a method of permitting calculation under socialism.

585
01:01:33.460 --> 01:01:39.020
The black market is a real market, though very limited in scope.

586
01:01:39.020 --> 01:01:45.500
Of course, the opportunity for black markets in large-sized goods is rather limited.

587
01:01:45.500 --> 01:01:51.740
There is more scope for such trade, where commodities like candy, cigarettes, drugs

588
01:01:51.740 --> 01:01:55.260
and stockings are easy to conceal.

589
01:01:55.260 --> 01:02:00.620
On the other hand, falsification of records by managers and the pervasive opportunity

590
01:02:00.620 --> 01:02:06.540
for bribery may be used to establish some form of limited market.

591
01:02:06.540 --> 01:02:13.580
There is reason to believe, for example, that extensive graft, blot, and black markets,

592
01:02:13.580 --> 01:02:20.060
that is, the subversion of socialist planning, have been essential to the level of production

593
01:02:20.060 --> 01:02:24.220
which the Soviet system has been able to attain.

594
01:02:24.220 --> 01:02:31.260
In recent years, the total failure of socialist planning to calculate for an industrial economy

595
01:02:31.260 --> 01:02:37.380
has been implicitly acknowledged by the communist countries, which have been rapidly moving,

596
01:02:37.380 --> 01:02:45.420
especially in Eastern Europe, away from socialism and toward an ever freer market economy.

597
01:02:45.420 --> 01:02:51.940
This progress has been particularly remarkable in Yugoslavia, which is now marked by private

598
01:02:51.940 --> 01:02:59.460
as well as producers' cooperative ownership, and by the absence of central planning, even

599
01:02:59.460 --> 01:03:06.500
of Investments, Yugoslav economists are even thinking in terms of developing a stock market

600
01:03:06.500 --> 01:03:13.300
and refer to this latent development as socialist people's capitalism.

601
01:03:13.300 --> 01:03:14.740
4.

602
01:03:14.740 --> 01:03:18.460
The Myth of Public Ownership

603
01:03:18.460 --> 01:03:22.860
We all hear a great deal about public ownership.

604
01:03:22.860 --> 01:03:28.600
Whenever the government owns property, in fact, or operates an enterprise, it is referred

605
01:03:28.600 --> 01:03:43.600
When natural resources are sold or given to private enterprise, we learn that the public domain has been given away to narrow private interests.

606
01:03:43.600 --> 01:03:53.600
The inference is that when the government owns anything, we, all members of the public, own equal shares of that property.

607
01:03:53.600 --> 01:04:02.000
contrast to this broad sweep the narrow petty interests of mere private ownership.

608
01:04:02.000 --> 01:04:08.480
We have seen that since a socialist economic system could not calculate economically, a

609
01:04:08.480 --> 01:04:14.760
die-hard socialist must be prepared to witness the disappearance of a large part of the earth's

610
01:04:14.760 --> 01:04:20.400
population, with only primitive subsistence remaining for the survivors.

611
01:04:20.400 --> 01:04:28.400
Still, a man who identifies government with public ownership might be content to spread

612
01:04:28.400 --> 01:04:37.140
the area of government ownership despite the loss of efficiency or social utility it entails.

613
01:04:37.140 --> 01:04:42.240
The identity itself, however, is completely fallacious.

614
01:04:42.240 --> 01:04:46.960
Ownership is the ultimate control and direction of a resource.

615
01:04:46.960 --> 01:04:54.640
The owner of a property is its ultimate director, regardless of legal fictions to the contrary.

616
01:04:54.640 --> 01:05:01.860
In the purely free society, resources so abundant as to serve as general conditions of human

617
01:05:01.860 --> 01:05:05.580
welfare would remain unowned.

618
01:05:05.580 --> 01:05:11.960
Scarce resources, on the other hand, would be owned on the following principles.

619
01:05:11.960 --> 01:05:20.240
Ownership of each person by himself, Self-ownership of a person's created or transformed property,

620
01:05:20.240 --> 01:05:27.600
First ownership of previously unowned land by its first user or transformer.

621
01:05:27.600 --> 01:05:33.440
Government ownership means simply that the ruling officialdom owns the property.

622
01:05:33.440 --> 01:05:39.280
The top officials are the ones who direct the use of the property and they therefore

623
01:05:39.280 --> 01:05:41.280
or do the owning.

624
01:05:41.280 --> 01:05:44.940
The public owns no part of the property.

625
01:05:44.940 --> 01:05:52.580
Any citizen who doubts this may try to appropriate for his own individual use his aliquot part

626
01:05:52.580 --> 01:05:57.940
of public property and then try to argue his case in court.

627
01:05:57.940 --> 01:06:04.260
It may be objected that individual stockholders of corporations cannot do this either.

628
01:06:04.260 --> 01:06:10.100
For example, by the rules of the company, a General Motors stockholder is not allowed

629
01:06:10.100 --> 01:06:16.580
to seize a car in lieu of cash dividends or in exchange for his stock.

630
01:06:16.580 --> 01:06:24.360
Yet stockholders do own their company, and this example precisely proves our point.

631
01:06:24.360 --> 01:06:28.540
For the stockholder can contract out of his company.

632
01:06:28.540 --> 01:06:34.340
He can sell his shares of General Motors stock to someone else.

633
01:06:34.340 --> 01:06:39.580
The subject of a government cannot contract out of that government.

634
01:06:39.580 --> 01:06:46.580
He cannot sell his shares in the post office because he has no such shares.

635
01:06:46.580 --> 01:06:52.700
As F. A. Harper has succinctly stated, the corollary of the right of ownership is the

636
01:06:52.700 --> 01:06:55.060
right of dis-ownership.

637
01:06:55.060 --> 01:07:01.380
So if I cannot sell a thing, it is evident that I do not really own it.

638
01:07:01.380 --> 01:07:07.380
Whatever the form of government, the rulers are the true owners of the property.

639
01:07:07.380 --> 01:07:14.220
However, in a democracy, or in the long run under any form of government, the rulers are

640
01:07:14.220 --> 01:07:15.500
transitory.

641
01:07:15.500 --> 01:07:21.140
They can always lose an election, or be overthrown by a coup d'etat.

642
01:07:21.140 --> 01:07:27.380
Hence, no government official regards himself as more than a transitory owner.

643
01:07:27.380 --> 01:07:34.900
As a result, while a private owner, secure in his property and owning its capital value,

644
01:07:34.900 --> 01:07:40.820
plans the use of his resource over a long period of time, the government official must

645
01:07:40.820 --> 01:07:47.660
milk the property as quickly as he can, since he has no security of ownership.

646
01:07:47.660 --> 01:07:53.820
Further, even the entrenched civil servant must do the same, for no government official

647
01:07:53.820 --> 01:08:00.220
can sell the capitalized value of his property as private owners can.

648
01:08:00.220 --> 01:08:08.020
In short, government officials own the use of resources but not their capital value except

649
01:08:08.020 --> 01:08:15.680
in the case of the private property of a hereditary monarch, when only the current use can be

650
01:08:15.680 --> 01:08:22.880
be owned, but not the resource itself, there will quickly ensue uneconomic exhaustion of

651
01:08:22.880 --> 01:08:29.680
the resources, since it will be to no one's benefit to conserve it over a period of time,

652
01:08:29.680 --> 01:08:34.900
and to every owner's advantage to use it up as quickly as possible.

653
01:08:34.900 --> 01:08:42.680
In the same way, government officials will consume their property as rapidly as possible.

654
01:08:42.680 --> 01:08:49.440
It is curious that almost all writers parrot the notion that private owners possessing

655
01:08:49.440 --> 01:08:56.320
time preference must take the short view, while only government officials can take the

656
01:08:56.320 --> 01:09:02.180
long view and allocate property to advance the general welfare.

657
01:09:02.180 --> 01:09:05.160
The truth is exactly the reverse.

658
01:09:05.160 --> 01:09:12.300
The private individual, secure in his property and in his capital resource, can take the

659
01:09:12.300 --> 01:09:18.460
The Long View, for he wants to maintain the capital value of his resource.

660
01:09:18.460 --> 01:09:24.900
It is the government official who must take and run, who must plunder the property while

661
01:09:24.900 --> 01:09:27.460
he is still in command.

662
01:09:27.460 --> 01:09:33.300
Those who object that private individuals are mortal but that governments are immortal

663
01:09:33.300 --> 01:09:39.140
indulge in the fallacy of conceptual realism at its starkest.

664
01:09:39.140 --> 01:09:46.880
Government is not a real acting entity, but is a real category of action adopted by actual

665
01:09:46.880 --> 01:09:48.420
individuals.

666
01:09:48.420 --> 01:09:56.400
It is a name for a type of action, the regularization of a type of interpersonal relation, and is

667
01:09:56.400 --> 01:10:00.680
not itself an acting being.

668
01:10:00.680 --> 01:10:02.560
5.

669
01:10:02.560 --> 01:10:04.600
Democracy

670
01:10:04.600 --> 01:10:11.000
Policy is a process of choosing government rulers or policies, and is therefore distinct

671
01:10:11.000 --> 01:10:17.300
from what we have been considering, the nature and consequences of various policies that

672
01:10:17.300 --> 01:10:19.580
a government may choose.

673
01:10:19.580 --> 01:10:27.060
A democracy can choose relatively laissez-faire or relatively interventionist programs, and

674
01:10:27.060 --> 01:10:29.420
the same is true for a dictator.

675
01:10:29.420 --> 01:10:36.540
And yet, the problem of forming a government cannot be absolutely separated from the policy

676
01:10:36.540 --> 01:10:38.900
that government pursues.

677
01:10:38.900 --> 01:10:44.180
And so, we shall discuss some of these connections here.

678
01:10:44.180 --> 01:10:50.220
Democracy is a system of majority rule in which each citizen has one vote, either in

679
01:10:50.220 --> 01:10:56.820
deciding the policies of the government or in electing the rulers, who will, in turn,

680
01:10:56.820 --> 01:10:58.080
decide policy.

681
01:10:58.080 --> 01:11:02.640
It is a system replete with inner contradictions.

682
01:11:02.640 --> 01:11:08.600
In the first place, suppose that the majority overwhelmingly wishes to establish a popular

683
01:11:08.600 --> 01:11:12.400
dictator or the rule of a single party.

684
01:11:12.400 --> 01:11:18.900
The people wish to surrender all decision-making into his or its hands.

685
01:11:18.900 --> 01:11:26.160
Does the system of democracy permit itself to be voted democratically out of existence?

686
01:11:26.160 --> 01:11:32.280
Whichever way the Democrat answers, he is caught in an inescapable contradiction.

687
01:11:32.280 --> 01:11:39.920
If the majority can vote into power a dictator who will end further elections, then democracy

688
01:11:39.920 --> 01:11:43.160
is really ending its own existence.

689
01:11:43.160 --> 01:11:50.280
From then on, there is no longer democracy, although there is continuing majority consent

690
01:11:50.280 --> 01:11:54.440
to the dictatorial party or ruler.

691
01:11:54.440 --> 01:12:00.880
Democracy in that case becomes a transition to a non-democratic form of government.

692
01:12:00.880 --> 01:12:08.200
On the other hand, if, as it is now fashionable to maintain, the majority of voters in a democracy

693
01:12:08.200 --> 01:12:16.440
are prohibited from doing one thing, ending the democratic elective process itself, then

694
01:12:16.440 --> 01:12:22.740
this is no longer democracy, because the majority of voters can no longer rule.

695
01:12:22.740 --> 01:12:30.020
The election process may be preserved, but how can it express that majority rule essential

696
01:12:30.020 --> 01:12:36.980
to democracy if the majority cannot end this process should it so desire?

697
01:12:36.980 --> 01:12:44.500
In short, democracy requires two conditions for its existence, majority rule over governors

698
01:12:44.500 --> 01:12:49.100
Progress or Policies, and Periodic Equal Voting.

699
01:12:49.100 --> 01:12:57.500
So, if the majority wishes to end the voting process, democracy cannot be preserved, regardless

700
01:12:57.500 --> 01:13:01.020
of which horn of the dilemma is chosen.

701
01:13:01.020 --> 01:13:08.200
The idea that the majority must preserve the freedom of the minority to become the majority

702
01:13:08.200 --> 01:13:16.040
is then seen not as a preservation of democracy, but as simply an arbitrary value judgment on the

703
01:13:16.040 --> 01:13:23.080
part of the political scientist, or at least it remains arbitrary until justified by some

704
01:13:23.080 --> 01:13:31.560
cogent ethical theory. This idea that democracy must force the majority to permit the minority

705
01:13:31.560 --> 01:13:39.080
The freedom to become a majority is an attempt by social democratic theorists to permit those

706
01:13:39.080 --> 01:13:46.200
results of democracy which they like, economic interventionism, socialism, while avoiding

707
01:13:46.200 --> 01:13:54.100
the results which they do not like, interference with human rights, freedom of speech, etc.

708
01:13:54.100 --> 01:14:01.400
They do this by trying to elevate their value judgments into an allegedly scientific definition

709
01:14:01.400 --> 01:14:03.080
of Democracy.

710
01:14:03.080 --> 01:14:10.200
Aside from the self-contradiction, this limitation is itself not as rigorous as they believe.

711
01:14:10.200 --> 01:14:16.560
It would permit a democracy, for example, to slaughter negroes or redheads because there

712
01:14:16.560 --> 01:14:22.600
is no chance that such minority groups could become majorities.

713
01:14:22.600 --> 01:14:29.520
This dilemma occurs not only if the majority wishes to select a dictator, but also if it

714
01:14:29.520 --> 01:14:35.360
Desires to Establish the Purely Free Society that we have outlined.

715
01:14:35.360 --> 01:14:43.240
For that society has no overall monopoly government organization, and the only place where equal

716
01:14:43.240 --> 01:14:49.520
voting would obtain would be in cooperatives, which have always been inefficient forms of

717
01:14:49.520 --> 01:14:51.120
organization.

718
01:14:51.120 --> 01:14:57.440
The only important form of voting in that society would be that of shareholders in joint

719
01:14:57.440 --> 01:15:03.760
Stock Companies, whose votes would not be equal but proportionate to their shares of

720
01:15:03.760 --> 01:15:06.720
ownership in the company assets.

721
01:15:06.720 --> 01:15:13.680
Each individual's vote, in that case, would be meaningfully tied to his share in the ownership

722
01:15:13.680 --> 01:15:15.800
of joint assets.

723
01:15:15.800 --> 01:15:21.360
To Spencer Heath, this is the only genuine form of democracy.

724
01:15:21.360 --> 01:15:28.560
When persons contractually pool their separate titles to property by taking undivided interests

725
01:15:28.560 --> 01:15:35.680
in the whole, they elect servants, officers, and otherwise exercise their authority over

726
01:15:35.680 --> 01:15:43.560
their property by a process of voting as partners, share owners, or other beneficiaries.

727
01:15:43.560 --> 01:15:50.560
This is authentically democratic in that all the members exercise authority in proportion

728
01:15:50.560 --> 01:15:57.520
and to their respective contributions. Coercion is not employed against any, and all persons

729
01:15:57.520 --> 01:16:04.120
are as free to withdraw their membership and property as they were to contribute it.

730
01:16:04.120 --> 01:16:10.520
In such a purely free society, there would be nothing for democratic electors to vote

731
01:16:10.520 --> 01:16:19.720
about. Here, too, democracy can be only a possible route toward a free society, rather

732
01:16:19.720 --> 01:16:22.320
than an attribute of it.

733
01:16:22.320 --> 01:16:26.920
Neither is democracy conceivably workable under socialism.

734
01:16:26.920 --> 01:16:34.200
The ruling party, owning all means of production, will have the complete decision, for example,

735
01:16:34.200 --> 01:16:40.800
on how much funds to allocate to the opposition parties for propaganda, not to speak of its

736
01:16:40.800 --> 01:16:47.360
economic power over all the individual leaders and members of the opposition.

737
01:16:47.360 --> 01:16:54.880
With the ruling party deciding the income of every man and the allocation of all resources,

738
01:16:54.880 --> 01:17:03.040
it is inconceivable that any functioning political opposition could long persist under socialism.

739
01:17:03.040 --> 01:17:09.540
Even if, as is highly unlikely, especially in view of the fact that rulers under socialism

740
01:17:09.540 --> 01:17:16.140
are those most adept at wielding force, the socialist leaders were saintly men, wishing

741
01:17:16.140 --> 01:17:23.260
to give a political opposition every chance, and even if the opposition were unusually heroic

742
01:17:23.260 --> 01:17:31.260
and risked liquidation by emerging into the open, how would the rulers decide their allocations?

743
01:17:31.260 --> 01:17:38.380
Would they give funds and resources to all opposing parties or only to a pro-socialist

744
01:17:38.380 --> 01:17:45.900
opposition? How much would they allocate to each opposition party? The only opposition that

745
01:17:45.900 --> 01:17:52.860
could emerge would be not opposing parties in an election, but different administrative

746
01:17:52.860 --> 01:17:59.820
cliques within the ruling party, as has been true in the communist countries.

747
01:17:59.820 --> 01:18:07.620
Thus democracy is compatible neither with the purely free society nor with socialism.

748
01:18:07.620 --> 01:18:15.520
And yet we have seen in this work that only those two societies are stable, that all intermediary

749
01:18:15.520 --> 01:18:22.260
Military mixtures are in unstable equilibrium and always tending toward one or the other

750
01:18:22.260 --> 01:18:23.760
pole.

751
01:18:23.760 --> 01:18:30.600
This means that democracy, in essence, is itself an unstable and transitional form of

752
01:18:30.600 --> 01:18:32.940
government.

753
01:18:32.940 --> 01:18:37.520
Democracy suffers from many more inherent contradictions as well.

754
01:18:37.520 --> 01:18:43.240
Thus, democratic voting may have either one of these two functions.

755
01:18:43.240 --> 01:18:48.120
To Determine Governmental Policy or To Select Rulers

756
01:18:48.120 --> 01:18:55.080
According to the former, what Schumpeter termed the classical theory of democracy, the majority

757
01:18:55.080 --> 01:18:58.760
will is supposed to rule on issues.

758
01:18:58.760 --> 01:19:05.520
According to the latter theory, majority rule is supposed to be confined to choosing rulers,

759
01:19:05.520 --> 01:19:08.400
who in turn decide policy.

760
01:19:08.400 --> 01:19:14.400
While most political scientists support the latter version, democracy means the former

761
01:19:14.400 --> 01:19:21.440
version to most people, and we shall therefore discuss the classical theory first.

762
01:19:21.440 --> 01:19:28.120
According to the will-of-the-people theory, direct democracy, voting on each issue by

763
01:19:28.120 --> 01:19:35.120
all the citizens, as in New England town meetings, is the ideal political arrangement.

764
01:19:35.120 --> 01:19:41.480
Modern civilization and the complexities of society, however, are supposed to have outmoded

765
01:19:41.480 --> 01:19:48.420
direct democracy, so that we must settle for the less perfect representative democracy,

766
01:19:48.420 --> 01:19:54.640
in olden days often called a republic, where the people select representatives to give

767
01:19:54.640 --> 01:19:58.840
effect to their will on political issues.

768
01:19:58.840 --> 01:20:02.580
Logical problems arise almost immediately.

769
01:20:02.580 --> 01:20:10.540
One is that different forms of electoral arrangements, different delimitations of geographical districts,

770
01:20:10.540 --> 01:20:17.540
all equally arbitrary, will often greatly alter the picture of the majority will.

771
01:20:17.540 --> 01:20:23.700
If a country is divided into districts for choosing representatives, then gerrymandering

772
01:20:23.700 --> 01:20:26.740
is inherent in such a division.

773
01:20:26.740 --> 01:20:32.700
There is no satisfactory, rational way of demarking the divisions.

774
01:20:32.700 --> 01:20:39.300
The party in power at the time of division or re-division will inevitably alter the

775
01:20:39.300 --> 01:20:44.060
districts to produce a systematic bias in its favor.

776
01:20:44.060 --> 01:20:51.660
But no other way is inherently more rational or more truly evocative of majority will.

777
01:20:51.660 --> 01:20:58.780
Moreover, the very division of the Earth's surface into countries is itself arbitrary.

778
01:20:58.780 --> 01:21:05.760
If a government covers a certain geographical area, does democracy mean that a majority

779
01:21:05.760 --> 01:21:12.680
group in a certain district should be permitted to secede and form its own government, or

780
01:21:12.680 --> 01:21:15.060
to join another country?

781
01:21:15.060 --> 01:21:21.940
Does democracy mean majority rule over a larger or over a smaller area?

782
01:21:21.940 --> 01:21:25.980
In short, which majority should prevail?

783
01:21:25.980 --> 01:21:32.300
The very concept of a national democracy is, in fact, self-contradictory.

784
01:21:32.300 --> 01:21:38.860
For if someone contends that the majority in country X should govern that country, then

785
01:21:38.860 --> 01:21:45.140
Then it could be argued with equal validity that the majority of a certain district within

786
01:21:45.140 --> 01:21:52.420
country X should be allowed to govern itself and secede from the larger country, and this

787
01:21:52.420 --> 01:22:00.040
subdividing process can logically proceed down to the village block, the apartment house,

788
01:22:00.040 --> 01:22:06.820
and finally each individual, thus marking the end of all democratic government through

789
01:22:06.820 --> 01:22:10.840
through reduction to individual self-government.

790
01:22:10.840 --> 01:22:17.300
But if such a right of secession is denied, then the National Democrat must concede that

791
01:22:17.300 --> 01:22:24.900
the more numerous population of other countries should have a right to outvote his country,

792
01:22:24.900 --> 01:22:32.580
and so he must proceed upwards to a world government run by a world majority rule.

793
01:22:32.580 --> 01:22:38.300
In short, the Democrat who favors national government is self-contradictory.

794
01:22:38.300 --> 01:22:43.060
He must favor a world government or none at all.

795
01:22:43.060 --> 01:22:49.560
Aside from this problem of the geographical boundary of the government or electoral district,

796
01:22:49.560 --> 01:22:56.820
the democracy that tries to elect representatives to effect the majority will runs into further

797
01:22:56.820 --> 01:22:57.820
problems.

798
01:22:57.820 --> 01:23:04.060
Finally, some form of proportional representation would be mandatory to arrive at a kind of

799
01:23:04.060 --> 01:23:07.300
cross-section of public opinion.

800
01:23:07.300 --> 01:23:13.060
Best would be a proportional representation scheme for the whole country or world, so

801
01:23:13.060 --> 01:23:18.420
that the cross-section is not distorted by geographic considerations.

802
01:23:18.420 --> 01:23:24.380
But here again, different forms of proportional representation will lead to very different

803
01:23:24.380 --> 01:23:38.380
The Critics of Proportional Representation retort that a legislature elected on this principle would be unstable and that elections should result in a stable majority government.

804
01:23:38.380 --> 01:23:55.380
The reply to this is that if we wish to represent the public, a cross-section is required, and the instability of representation is only a function of the instability or diversity of public opinion itself.

805
01:23:55.380 --> 01:24:13.380
The Efficient Government Argument can be pursued, therefore, only if we abandon the classical majority will theory completely, and adopt the second theory, that the only function of the majority is to choose rulers.

806
01:24:13.380 --> 01:24:24.380
But even proportional representation would not be as good, according to the classical view of democracy, as direct democracy.

807
01:24:24.380 --> 01:24:29.680
And here we come to another important and neglected consideration.

808
01:24:29.680 --> 01:24:35.980
Modern technology does make it possible to have direct democracy.

809
01:24:35.980 --> 01:24:41.880
Certainly, each man could easily vote on issues several times per week

810
01:24:41.880 --> 01:24:46.680
by recording his choice on a device attached to his television set.

811
01:24:46.680 --> 01:24:49.480
This would not be difficult to achieve.

812
01:24:49.480 --> 01:24:58.480
And yet, why has no one seriously suggested a return to direct democracy, now that it may be feasible?

813
01:24:58.480 --> 01:25:08.480
The people could elect representatives through proportional representation solely as advisors to submit bills to the people,

814
01:25:08.480 --> 01:25:12.480
but without having ultimate voting power themselves.

815
01:25:12.480 --> 01:25:19.700
The final vote would be that of the people themselves, all voting directly.

816
01:25:19.700 --> 01:25:26.620
In a sense, the entire voting public would be the legislature, and the representatives

817
01:25:26.620 --> 01:25:32.720
could act as committees to bring bills before this vast legislature.

818
01:25:32.720 --> 01:25:39.880
The person who favors the classical view of democracy must, therefore, either favor virtual

819
01:25:39.880 --> 01:25:49.520
Eradication of the Legislature and, of course, of executive veto power, or abandon his theory.

820
01:25:49.520 --> 01:25:56.560
The objection to direct democracy will undoubtedly be that the people are uninformed, and therefore

821
01:25:56.560 --> 01:26:02.580
not capable of deciding on the complex issues that face the legislature.

822
01:26:02.580 --> 01:26:09.040
But in that case, the democrat must completely abandon the classical theory that the majority

823
01:26:09.040 --> 01:26:15.920
should decide on issues, and adopt the modern doctrine that the function of democracy is

824
01:26:15.920 --> 01:26:22.320
majority choice of rulers, who in turn will decide the policies.

825
01:26:22.320 --> 01:26:25.140
Let us then turn to this doctrine.

826
01:26:25.140 --> 01:26:32.320
It faces, fully as much as the classical theory, the self-contradiction on national or electoral

827
01:26:32.320 --> 01:26:43.320
and the modern Democrat, if we may call him such, as much as the classical Democrat, must advocate world government or none at all.

828
01:26:43.320 --> 01:26:55.320
On the question of representation, it is true that the modern Democrat can successfully oppose direct television democracy or even proportional representation

829
01:26:55.320 --> 01:27:00.320
and Resort to Our Current System of Single Constituencies.

830
01:27:00.320 --> 01:27:03.320
But he is caught in a different dilemma.

831
01:27:03.320 --> 01:27:10.320
If the only function of the voting people is to choose rulers, why have a legislature at all?

832
01:27:10.320 --> 01:27:17.320
Why not simply vote periodically for a chief executive or president and then call it a day?

833
01:27:17.320 --> 01:27:24.320
If the criterion is efficiency and stable rule by a single party for the term of office,

834
01:27:24.320 --> 01:27:30.280
in the Office, then a single executive will be far more stable than a legislature, which

835
01:27:30.280 --> 01:27:35.980
may always splinter into warring groups and deadlock the government.

836
01:27:35.980 --> 01:27:42.960
The modern democrat, therefore, must also logically abandon the idea of a legislature,

837
01:27:42.960 --> 01:27:49.200
and plump for granting all legislative powers to the elected executive.

838
01:27:49.200 --> 01:27:57.200
The theories of democracy, it seems, must abandon the whole idea of a representative legislature.

839
01:27:57.200 --> 01:28:03.760
Furthermore, the modern democrat who scoffs at direct democracy on the ground that the

840
01:28:03.760 --> 01:28:10.680
people are not intelligent or informed enough to decide the complex issues of government

841
01:28:10.680 --> 01:28:13.820
is caught in another fatal contradiction.

842
01:28:13.820 --> 01:28:20.900
He assumes that the people are sufficiently intelligent and informed to vote on the people

843
01:28:20.900 --> 01:28:23.280
who will make these decisions.

844
01:28:23.280 --> 01:28:31.100
But if a voter is not competent to decide issues A, B, C, etc., how in the world could

845
01:28:31.100 --> 01:28:39.580
he possibly be qualified to decide whether Mr. X or Mr. Y is better able to handle A,

846
01:28:39.580 --> 01:28:41.440
B, or C?

847
01:28:41.440 --> 01:28:46.500
In order to make this decision, the voter would have to know a great deal about the

848
01:28:46.500 --> 01:28:52.080
issues, and know enough about the persons whom he is selecting.

849
01:28:52.080 --> 01:28:59.200
In short, he would probably have to know more in a representative than in a direct democracy.

850
01:28:59.200 --> 01:29:06.760
Furthermore, the average voter is necessarily less qualified to choose persons to decide

851
01:29:06.760 --> 01:29:14.040
Issues, then he is to vote on the issues themselves, for the issues are at least intelligible

852
01:29:14.040 --> 01:29:20.080
to him, and he can understand some of their relevance, but the candidates are people whom

853
01:29:20.080 --> 01:29:27.280
he cannot possibly know personally, and whom he therefore knows essentially nothing about.

854
01:29:27.280 --> 01:29:33.920
Hence he can vote for them only on the basis of their external personalities, glamorous

855
01:29:33.920 --> 01:30:02.920
The modern democrat might object that the candidate's party affiliation enables the voter to learn, if not his personal competence, at least his political ideology,

856
01:30:02.920 --> 01:30:09.880
Theology, but the modern democrat is precisely the theorist who hails the current two-party

857
01:30:09.880 --> 01:30:17.520
system in which the platforms of both parties are almost indistinguishable as the most efficient,

858
01:30:17.520 --> 01:30:20.880
stable form of democratic government.

859
01:30:20.880 --> 01:30:26.340
These considerations also serve to refute the contention of the conservative that a

860
01:30:26.340 --> 01:30:32.880
republic will avoid the inherent contradictions of a direct democracy, a position that it

861
01:30:32.880 --> 01:30:40.640
itself stands in contradiction to its proponents' professed opposition to executive as against

862
01:30:40.640 --> 01:30:43.440
legislative power.

863
01:30:43.440 --> 01:30:48.900
We have seen the problems that democratic theory has with the legislature.

864
01:30:48.900 --> 01:30:52.240
It also has difficulty with the judiciary.

865
01:30:52.240 --> 01:30:58.800
In the first place, the very concept of an independent judiciary contradicts the theory

866
01:30:58.800 --> 01:31:03.320
of Democratic Rule, whether classical or modern.

867
01:31:03.320 --> 01:31:09.820
If the judiciary is really independent of the popular will, then it functions, at least

868
01:31:09.820 --> 01:31:17.280
within its own sphere, as an oligarchic dictatorship, and we can no longer call the government a

869
01:31:17.280 --> 01:31:18.280
democracy.

870
01:31:18.280 --> 01:31:24.660
On the other hand, if the judiciary is elected directly by the voters, or appointed by the

871
01:31:24.660 --> 01:31:32.660
If the voters' representatives, both systems, are used in the United States, then the judiciary is hardly independent.

872
01:31:32.660 --> 01:31:45.660
If the election is periodic, or if the appointment is subject to renewal, then the judiciary is no more independent of political processes than any other branch of government.

873
01:31:45.660 --> 01:31:50.660
If the appointment is for life, then the independence is greater.

874
01:31:50.660 --> 01:31:57.240
Although, even here, if the legislature votes the funds for the judge's salaries, or if

875
01:31:57.240 --> 01:32:05.340
it decides the jurisdiction of judicial powers, judicial independence may be sharply impaired.

876
01:32:05.340 --> 01:32:11.900
We have not exhausted the problems and contradictions of democratic theory, and we may pursue the

877
01:32:11.900 --> 01:32:16.900
rest by asking, why democracy anyway?

878
01:32:16.900 --> 01:32:23.660
Until now we have been discussing various theories of how democracies should function,

879
01:32:23.660 --> 01:32:31.260
or what areas, for example, issues or rulers, should be governed by the democratic process.

880
01:32:31.260 --> 01:32:38.940
We may now inquire about the theories that support and justify democracy itself.

881
01:32:38.940 --> 01:32:46.740
One theory, again of classical vintage, is that the majority will always, or almost always,

882
01:32:46.740 --> 01:32:52.480
make the morally right decisions, whether about issues or men.

883
01:32:52.480 --> 01:32:58.100
Since this is not an ethical treatise, we cannot deal further with this doctrine, except

884
01:32:58.100 --> 01:33:02.100
to say that few people hold this view today.

885
01:33:02.100 --> 01:33:10.040
It has been demonstrated that people can democratically choose a wide variety of policies and rulers,

886
01:33:10.040 --> 01:33:16.080
and the experience of recent centuries has, for the most part, vitiated any faith that

887
01:33:16.080 --> 01:33:23.280
that people may have had in the infallible wisdom and righteousness of the average voter.

888
01:33:23.280 --> 01:33:30.920
Perhaps the most common and most cogent argument for democracy is not that democratic decisions

889
01:33:30.920 --> 01:33:39.400
will always be wise, but that the democratic process provides for peaceful change of government.

890
01:33:39.400 --> 01:33:46.880
The majority, so the argument runs, must support any government, regardless of form, if it

891
01:33:46.880 --> 01:33:50.120
is to continue existing for long.

892
01:33:50.120 --> 01:33:57.000
Far better, then, to let the majority exercise this right peacefully and periodically, than

893
01:33:57.000 --> 01:34:03.560
to force the majority to keep overturning the government through violent revolution.

894
01:34:03.560 --> 01:34:09.560
In short, ballots are hailed as substitutes for bullets.

895
01:34:09.560 --> 01:34:16.580
One flaw in this argument is that it completely overlooks the possibility of the non-violent

896
01:34:16.580 --> 01:34:23.580
overthrow of the government by the majority through civil disobedience, that is, peaceful

897
01:34:23.580 --> 01:34:27.240
refusal to obey government orders.

898
01:34:27.240 --> 01:34:32.760
Such a revolution would be consistent with this argument's ultimate end of preserving

899
01:34:32.760 --> 01:34:38.120
peace, and yet would not require democratic voting.

900
01:34:38.120 --> 01:34:40.720
Thus Etienne de la Boétie.

901
01:34:40.720 --> 01:34:47.820
Obviously there is no need of fighting to overcome this single tyrant, for he is automatically

902
01:34:47.820 --> 01:34:53.600
defeated if the country refuses consent to its own enslavement.

903
01:34:53.600 --> 01:34:59.640
It is not necessary to deprive him of anything, but simply to give him nothing.

904
01:34:59.640 --> 01:35:05.840
There is no need that the country make an effort to do anything for itself, provided

905
01:35:05.840 --> 01:35:09.260
it does nothing against itself.

906
01:35:09.260 --> 01:35:16.360
It is therefore the inhabitants themselves who permit, or rather, bring about their own

907
01:35:16.360 --> 01:35:23.960
Subjection, since by ceasing to submit, they could put an end to their servitude.

908
01:35:23.960 --> 01:35:30.760
There is, moreover, another flaw in the peaceful change argument for democracy, this one being

909
01:35:30.760 --> 01:35:35.880
a grave self-contradiction that has been universally overlooked.

910
01:35:35.880 --> 01:35:40.880
Those who have adopted this argument have simply used it to give a seal of approval

911
01:35:40.880 --> 01:35:46.900
People to All Democracies and have then moved on quickly to other matters.

912
01:35:46.900 --> 01:35:54.440
They have not realized that the peaceful change argument establishes a criterion for government

913
01:35:54.440 --> 01:35:58.960
before which any democracy must pass muster.

914
01:35:58.960 --> 01:36:06.460
For the argument that ballots are to substitute for bullets must be taken in a precise way,

915
01:36:06.460 --> 01:36:12.580
That a democratic election will yield the same result as would have occurred if the

916
01:36:12.580 --> 01:36:18.300
majority had had to battle the minority in violent combat.

917
01:36:18.300 --> 01:36:25.980
In short, the argument implies that the election results are simply and precisely a substitute

918
01:36:25.980 --> 01:36:29.140
for a test of physical combat.

919
01:36:29.140 --> 01:36:32.400
Here we have a criterion for democracy.

920
01:36:32.400 --> 01:36:38.500
Does it really yield the results that would have been obtained through civil combat?

921
01:36:38.500 --> 01:36:45.500
If we find that democracy, or a certain form of democracy, leads systematically to results

922
01:36:45.500 --> 01:36:52.800
that are very wide of this bullet-substitute mark, then we must either reject democracy

923
01:36:52.800 --> 01:36:55.600
or give up the argument.

924
01:36:55.600 --> 01:37:02.780
How then does democracy, either generally or in specific countries, fare when we test it

925
01:37:02.780 --> 01:37:05.400
against its own criterion?

926
01:37:05.400 --> 01:37:12.280
One of the essential attributes of democracy, as we have seen, is that each man have one

927
01:37:12.280 --> 01:37:13.440
vote.

928
01:37:13.440 --> 01:37:19.900
Even though in practice votes of rural or other areas are often more heavily weighted,

929
01:37:19.900 --> 01:37:26.860
This democratic ideal is roughly approximated, or at least is the general aspiration in the

930
01:37:26.860 --> 01:37:28.980
democratic countries.

931
01:37:28.980 --> 01:37:35.320
But the peaceful change argument implies that each man would have counted equally in any

932
01:37:35.320 --> 01:37:37.300
combat test.

933
01:37:37.300 --> 01:37:38.960
But is this true?

934
01:37:38.960 --> 01:37:44.780
In the first place, it is clear that physical power is not equally distributed.

935
01:37:44.780 --> 01:37:52.780
In any test of combat, women, old people, sick people and 4Fs would fare very badly.

936
01:37:52.780 --> 01:37:58.860
On the basis of the peaceful change argument, therefore, there is no justification whatever

937
01:37:58.860 --> 01:38:03.180
for giving these physically feeble groups the vote.

938
01:38:03.180 --> 01:38:10.420
So barred from voting would be all citizens who could not pass a test, not for literacy,

939
01:38:10.420 --> 01:38:16.220
which is largely irrelevant to combat prowess, but for physical fitness.

940
01:38:16.220 --> 01:38:22.620
Furthermore, it clearly would be necessary to give plural votes to all men who have been

941
01:38:22.620 --> 01:38:29.720
militarily trained, such as soldiers and policemen, for it is obvious that a group of highly trained

942
01:38:29.720 --> 01:38:37.520
fighters could easily defeat a far more numerous group of equally robust amateurs.

943
01:38:37.520 --> 01:38:44.280
In addition to ignoring the inequalities of physical power and combat fitness, democracy

944
01:38:44.280 --> 01:38:50.820
fails in another significant way to live up to the logical requirements of the Peaceful

945
01:38:50.820 --> 01:38:53.080
Change Thesis.

946
01:38:53.080 --> 01:39:01.840
This failure stems from another basic inequality, inequality of interest or intensity of belief.

947
01:39:01.840 --> 01:39:09.320
Thus, 60 percent of the population may oppose a certain policy or political party, while

948
01:39:09.320 --> 01:39:12.260
only 40 percent favor it.

949
01:39:12.260 --> 01:39:17.640
In a democracy, this latter policy or party will be defeated.

950
01:39:17.640 --> 01:39:23.680
But suppose that the bulk of the 40 percent are passionate enthusiasts for the measure

951
01:39:23.680 --> 01:39:30.220
or candidate, while the bulk of the 60 percent majority have only slight interest in the

952
01:39:30.220 --> 01:39:32.180
and the entire affair.

953
01:39:32.180 --> 01:39:38.760
In the absence of democracy, far more of the passionate 40% would have been willing to

954
01:39:38.760 --> 01:39:44.840
engage in a combat test than would the apathetic 60%.

955
01:39:44.840 --> 01:39:52.680
And yet, in a democratic election, one vote by an apathetic, only faintly interested person

956
01:39:52.680 --> 01:39:56.060
offsets the vote of a passionate partisan.

957
01:39:56.060 --> 01:40:02.920
Hence, the democratic process grievously and systematically distorts the results of the

958
01:40:02.920 --> 01:40:06.240
hypothetical combat test.

959
01:40:06.240 --> 01:40:13.220
It is probable that no voting procedure could avoid this distortion satisfactorily and serve

960
01:40:13.220 --> 01:40:17.280
as any sort of accurate substitute for bullets.

961
01:40:17.280 --> 01:40:23.720
But certainly much could be done to alter current voting procedures to bring them closer

962
01:40:23.720 --> 01:40:29.800
to the criterion, and it is surprising that no one has suggested such reforms.

963
01:40:29.800 --> 01:40:36.400
The whole trend of existing democracies, for example, has been to make voting easier for

964
01:40:36.400 --> 01:40:43.720
the people, but this violates the bullet-substitute test directly, because it has been made ever

965
01:40:43.720 --> 01:40:50.440
easier for the apathetic to register their votes and thus distort the results.

966
01:40:50.440 --> 01:40:57.360
Clearly, what would be needed is to make voting far more difficult and thus ensure that only

967
01:40:57.360 --> 01:41:01.520
the most intensely interested people will vote.

968
01:41:01.520 --> 01:41:07.840
A moderately high poll tax, not large enough to keep out those enthusiasts who could not

969
01:41:07.840 --> 01:41:14.600
afford to pay, but large enough to discourage the indifferent, would be very helpful.

970
01:41:14.600 --> 01:41:18.280
Voting booths should certainly be further apart.

971
01:41:18.280 --> 01:41:24.640
The person who refuses to travel any appreciable distance to vote would surely not have fought

972
01:41:24.640 --> 01:41:27.240
in his candidate's behalf.

973
01:41:27.240 --> 01:41:33.480
Another useful step would be to remove all names from the ballot, thereby requiring the

974
01:41:33.480 --> 01:41:38.220
voters themselves to write in the names of their favorites.

975
01:41:38.220 --> 01:41:44.720
Not only would this procedure eliminate the decidedly undemocratic special privilege that

976
01:41:44.720 --> 01:41:51.480
The State gives to those whose names it prints on the ballot, as against all other persons,

977
01:41:51.480 --> 01:41:57.360
but it would bring elections closer to our criterion, for a voter who does not know the

978
01:41:57.360 --> 01:42:03.720
name of his candidate would hardly be likely to fight in the streets on his behalf.

979
01:42:03.720 --> 01:42:08.720
Another indicated reform would be to abolish the secrecy of the ballot.

980
01:42:08.720 --> 01:42:14.560
The ballot has been made secret in order to protect the fearful from intimidation, yet

981
01:42:14.560 --> 01:42:19.700
That civil combat is peculiarly the province of the courageous.

982
01:42:19.700 --> 01:42:26.020
Surely those not courageous enough to proclaim their choice openly would not have been formidable

983
01:42:26.020 --> 01:42:29.780
fighters in the combat test.

984
01:42:29.780 --> 01:42:35.220
These and doubtless other reforms would be necessary to move the election results to

985
01:42:35.220 --> 01:42:40.260
a point approximating the results of a combat foregone.

986
01:42:40.260 --> 01:42:47.420
And yet, if we define democracy as including equal voting, this means that democracy simply

987
01:42:47.420 --> 01:42:53.860
cannot meet its own criterion as deduced from the peaceful change argument.

988
01:42:53.860 --> 01:43:01.820
Or, if we define democracy as majority voting but not necessarily equal, then the advocates

989
01:43:01.820 --> 01:43:09.060
of democracy would have to favor abolishing the vote for women, sick people, old people,

990
01:43:09.060 --> 01:43:16.860
etc., plural voting for the militarily trained, poll taxes, the open vote, etc.

991
01:43:16.860 --> 01:43:23.940
In any case, democracy such as we have known it, marked by equal voting for each person,

992
01:43:23.940 --> 01:43:28.980
is directly contradicted by the peaceful change argument.

993
01:43:28.980 --> 01:43:35.300
One or the other, the argument or the system, must be abandoned.

994
01:43:35.300 --> 01:43:41.660
If the arguments for democracy are thus shown to be a maze of fallacy and contradiction,

995
01:43:41.660 --> 01:43:47.960
does this mean that democracy must be completely abandoned, except on the basis of a purely

996
01:43:47.960 --> 01:43:54.020
arbitrary unsupported value judgment that democracy is good?

997
01:43:54.020 --> 01:43:55.460
Not necessarily.

998
01:43:55.460 --> 01:44:02.860
For democracy may be thought of, not so much as a value in itself, but as a possible method

999
01:44:02.860 --> 01:44:06.340
for Achieving Other Desired Ends.

1000
01:44:06.340 --> 01:44:13.620
The end may be either to put a certain political leader into power, or to attain desired governmental

1001
01:44:13.620 --> 01:44:14.620
policies.

1002
01:44:14.620 --> 01:44:21.620
Democracy, after all, is simply a method of choosing governors and issues, and it is not

1003
01:44:21.620 --> 01:44:28.600
so surprising that it might have value largely to the extent that it serves as a means to

1004
01:44:28.600 --> 01:44:30.840
other political ends.

1005
01:44:30.840 --> 01:44:37.200
The socialist and the libertarian, for example, while recognizing the inherent instability

1006
01:44:37.200 --> 01:44:44.380
of the democratic form, may favor democracy as a means of arriving at a socialist or a

1007
01:44:44.380 --> 01:44:46.900
libertarian society.

1008
01:44:46.900 --> 01:44:53.280
The libertarian might thus consider democracy as a useful way of protecting people against

1009
01:44:53.280 --> 01:44:57.800
government or of advancing individual liberty.

1010
01:44:57.800 --> 01:45:04.040
Some libertarians consider a constitution a useful device for limiting or preventing

1011
01:45:04.040 --> 01:45:07.980
governmental encroachments on individual liberty.

1012
01:45:07.980 --> 01:45:14.660
A major difficulty with this idea was pointed out with great clarity by John C. Calhoun

1013
01:45:14.660 --> 01:45:21.680
that no matter how strict the limitations placed on government by a written constitution,

1014
01:45:21.680 --> 01:45:28.780
These limits must be constantly weakened and expanded if the final power to interpret them

1015
01:45:28.780 --> 01:45:34.700
is placed in the hands of an organ of the government itself, for example, the Supreme

1016
01:45:34.700 --> 01:45:36.320
Court.

1017
01:45:36.320 --> 01:45:43.600
One's views of democracy, then, depend upon one's estimates of the given circumstances.

1018
01:45:43.600 --> 01:45:45.560
Appendix.

1019
01:45:45.560 --> 01:45:52.160
The Role of Government Expenditures in National Product Statistics

1020
01:45:52.160 --> 01:45:57.200
National product statistics have been used widely in recent years as a reflection of

1021
01:45:57.200 --> 01:46:04.360
the total product of society and even to indicate the state of economic welfare.

1022
01:46:04.360 --> 01:46:11.280
These statistics cannot be used to frame or test economic theory, for one thing because

1023
01:46:11.280 --> 01:46:19.160
Because they are an inchoate mixture of grossness and netness, and because no objectively measurable

1024
01:46:19.160 --> 01:46:26.880
price level exists, that can be used as an accurate deflator to obtain statistics of

1025
01:46:26.880 --> 01:46:31.040
some form of aggregate physical output.

1026
01:46:31.040 --> 01:46:37.560
National product statistics, however, may be useful to the economic historian in describing

1027
01:47:07.560 --> 01:47:12.800
Originally national income statisticians were split on this issue.

1028
01:47:12.800 --> 01:47:19.920
Simon Kuznets evaluated government services as equal to the taxes paid, assuming that

1029
01:47:19.920 --> 01:47:25.640
government is akin to private business and that government receipts, like the receipts

1030
01:47:25.640 --> 01:47:30.960
of a firm, reflect the market appraised value of its product.

1031
01:47:30.960 --> 01:47:36.420
The error in treating government like a private business should be clear by this point in

1032
01:47:36.420 --> 01:47:42.700
In our discussion, now generally adopted is the Department of Commerce method of appraising

1033
01:47:42.700 --> 01:47:49.940
government services as equal to their cost, that is, to government expenditures on the

1034
01:47:49.940 --> 01:47:56.420
salaries of its officials and on commodities purchased from private enterprise.

1035
01:47:56.420 --> 01:48:02.940
The difference is that all governmental deficits are included by the Department in the government's

1036
01:48:02.940 --> 01:48:06.340
contribution to the national product.

1037
01:48:06.340 --> 01:48:15.340
The Department of Commerce method fallaciously assumes that the government's product is measurable by what the government spends.

1038
01:48:15.340 --> 01:48:20.340
On what possible basis can this assumption be made?

1039
01:48:20.340 --> 01:48:32.340
Actually, since governmental services are not tested on the free market, there is no possible way of measuring government's alleged productive contribution.

1040
01:48:32.340 --> 01:48:39.400
All government services, as we have seen, are monopolized and inefficiently supplied.

1041
01:48:39.400 --> 01:48:45.100
Clearly, if they are worth anything, they are worth far less than their cost in money.

1042
01:48:45.100 --> 01:48:52.780
Furthermore, the government's tax revenue and deficit revenue are both burdens imposed

1043
01:48:52.780 --> 01:48:57.780
on production, and the nature of this burden should be recognized.

1044
01:48:57.780 --> 01:49:04.300
Since government activities are more likely to be depredations upon rather than contributions

1045
01:49:04.300 --> 01:49:11.180
to production, it is more accurate to make the opposite assumption, namely that government

1046
01:49:11.180 --> 01:49:18.540
contributes nothing to the national product and its activities sap the national product

1047
01:49:18.540 --> 01:49:23.000
and channel it into unproductive uses.

1048
01:49:23.000 --> 01:49:29.440
When using national product statistics then, we must correct for the inclusion of government

1049
01:49:29.440 --> 01:49:32.600
activities in the national product.

1050
01:49:32.600 --> 01:49:39.880
From net national product, we first deduct income originating in government, that is,

1051
01:49:39.880 --> 01:49:42.420
the salaries of government officials.

1052
01:49:42.420 --> 01:49:48.160
We must also deduct income originating in government enterprises.

1053
01:49:48.160 --> 01:49:54.140
These are the current expenditures or salaries of officials in government enterprises that

1054
01:49:54.140 --> 01:49:57.480
sell their product for a price.

1055
01:49:57.480 --> 01:50:03.600
National income statistics unfortunately include these accounts in the private rather than

1056
01:50:03.600 --> 01:50:06.040
in the governmental sector.

1057
01:50:06.040 --> 01:50:11.520
This leaves us with net private product, or NPP.

1058
01:50:11.520 --> 01:50:18.960
From NPP we must deduct the depredations of government in order to arrive at private product

1059
01:50:18.960 --> 01:50:24.220
remaining in private hands, or PPR.

1060
01:50:24.220 --> 01:50:31.640
These depredations consist of A. purchases from business by government, B. purchases

1061
01:50:31.640 --> 01:50:38.480
from business by government enterprises, and C. transfer payments.

1062
01:50:38.480 --> 01:50:44.400
Depredations from business should be deducted gross of government sales to the public, rather

1063
01:50:44.400 --> 01:50:51.160
than net, for government sales are simply equivalent to tax revenue in absorbing money

1064
01:50:51.160 --> 01:50:53.720
from the private sector.

1065
01:50:53.720 --> 01:51:01.480
The total of these depredations divided by NPP yields the percentage of government depredations

1066
01:51:01.480 --> 01:51:03.640
on the private product.

1067
01:51:03.640 --> 01:51:10.120
A simpler guide to the fiscal impact of government on the economy would be to deduct the total

1068
01:51:10.120 --> 01:51:16.560
expenditures of government and government enterprises from the NNP.

1069
01:51:16.560 --> 01:51:23.920
These expenditures equaling income originating in government and government enterprises added

1070
01:51:23.920 --> 01:51:26.420
to the total depredations.

1071
01:51:26.420 --> 01:51:32.600
This figure would be an estimate of total government depredation on the economy.

1072
01:51:32.600 --> 01:51:38.880
Of course, taxes and revenues of government enterprises could be deducted instead from

1073
01:51:38.880 --> 01:51:46.860
the NNP and the result would be the same in accordance with double entry principles, provided

1074
01:51:46.860 --> 01:51:51.000
that a government deficit is also deducted.

1075
01:51:51.000 --> 01:51:56.900
On the other hand, if there is a surplus in the government budget, then this surplus should

1076
01:51:56.900 --> 01:52:04.900
should be deducted as well as expenditures, since it too absorbs funds from the private sector.

1077
01:52:04.900 --> 01:52:11.900
In short, either total government expenditures or total government receipts,

1078
01:52:11.900 --> 01:52:20.900
each figure inclusive of government enterprises, should be deducted from NNP, whichever is the higher.

1079
01:52:20.900 --> 01:52:26.840
The resulting figures will yield an approximation of the impact of the government's fiscal

1080
01:52:26.840 --> 01:52:29.380
affairs on the economy.

1081
01:52:29.380 --> 01:52:36.060
A more precise estimate, as we have seen, would compare total depredations proper with

1082
01:52:36.060 --> 01:52:39.100
gross private product.

1083
01:52:39.100 --> 01:52:45.560
In subtracting government expenditures from the gross national product, we note that government

1084
01:52:45.560 --> 01:52:49.900
transfer payments are included in this deduction.

1085
01:52:49.900 --> 01:52:56.060
Professor John Dew would dispute this procedure on the ground that transfer activities are

1086
01:52:56.060 --> 01:53:03.540
not included in the national product figures, but the important consideration is that taxes

1087
01:53:03.540 --> 01:53:11.340
and deficits to finance transfer payments do act as a drain on the national product

1088
01:53:11.340 --> 01:53:18.340
and therefore must be subtracted from NNP to yield PPR.

1089
01:53:18.340 --> 01:53:25.220
Engaging the relative size of governmental vis-à-vis private activity, Dew warns that

1090
01:53:25.220 --> 01:53:31.380
the sum of governmental expenditures should not include transfer payments, which merely

1091
01:53:31.380 --> 01:53:36.460
shift purchasing power without using up resources.

1092
01:53:36.460 --> 01:53:44.060
Yet this mere shift is as much a burden upon the producers, as much a shift from voluntary

1093
01:53:44.060 --> 01:53:50.380
Every production to state-created privilege as any other governmental expenditure.