Economics Dictionary of ArgumentsHome
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| Government spending: Government spending refers to the use of public funds for various purposes, including infrastructure, defense, healthcare, education, and social programs. See also Government policy, Government debt, Government budget, State, Infrastructure, Healthcare system, Education._____________Annotation: The above characterizations of concepts are neither definitions nor exhausting presentations of problems related to them. Instead, they are intended to give a short introduction to the contributions below. – Lexicon of Arguments. | |||
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Murray N. Rothbard on Government Spending - Dictionary of Arguments
Rothbard III 910 Government spending/Rothbard: There has (…) been a great amount of useless controversy about which activity of government imposes the burden on the private sector: taxation or government spending. A. Taxation/government spending: It is actually futile to separate them, since they are both stages in the same process of burden and redistribution. Example: (…) suppose the government taxes the betel-nut industry one million dollars in order to buy paper for government bureaus. One million dollars' worth of resources are shifted from betel nuts to paper. This is done in two stages, a sort of one-two punch at the free market: first, the betel-nut industry is made poorer by taking away its money; then, the government uses this money to take paper out of the market for its own use, thus extracting resources in the second stage. Society: [For the society] both sides of the process are a burden. In a sense, the betel-nut industry is compelled to pay for the extraction of paper from society; at least, it bears the immediate brunt of payment. Partial equilibirum/prices: However, even without yet considering the "partial equilibrium" problem of how or whether such taxes are "shifted" by the betel-nut industry onto other shoulders, we should also note that it is not the only one to pay; the consumers of paper certainly pay by finding paper prices raised to them. B. The process can be seen more clearly if we consider what happens when taxes and government expenditures are not equal, when they are not simply obverse sides of the same coin. a) New money: When taxes are less than government expenditures (and omitting borrowing from the public for the time being), the government creates new money. It is obvious here that government expenditures are the main burden, since this higher amount of resources is being siphoned off. In fact, as we shall see later when considering the binary intervention of inflation, creating new money is, anyway, a form of taxation. >Inflation/Rothbard. b) Deflation: But what of that rare case when taxation is higher than government spending? Say that the surplus is either hoarded in the government's gold supply or that the money is liquidated through deflation (…). >Deflation/Rothbard. Thus, assume that $ is taken from the betel-nut industry and only $ 600,000 is spent on paper. In this case, the larger burden is that of taxation, which pays not only for the extracted paper but also for the hoarded or destroyed money. While the government extracts only $ 600,000 worth of resources from the economy, the betel-nut industry loses $ 1 of potential resources, and this loss should not be forgotten in toting up the burdens imposed by the government's budgetary process. In short, when government expenditures and receipts differ, the "fiscal burden" on society may be very approximately gauged by whichever is the greater total. Rothbard III 911 Budget: Since taxation cannot really be uniform, the government in its budgetary process of tax-and-spend inevitably takes coercively from Peter to give to Paul ("Paul," of course, including itself). Distribution/redistribution: In addition to distorting the allocation of resources, therefore, the budgetary process redistributes incomes or, rather, distributes incomes. For the free market does not distribute incomes; income there arises naturally and smoothly out of the market processes of production and exchange. Thus, the very concept of "distribution" as something separate from production and exchange can arise only from the government's binary intervention. >Interventions/Rothbard. Utilitarianism: It is often charged, for example, that the free market maximizes the utility of all, and the satisfactions of all consumers, only "gives a certain existing distribution of income." But this common fallacy is incorrect; there is no "assumed distribution" on the free market separate from the voluntary activities of every individual's production and exchange. The only given on the free market is the property right of every man in his own person and in the resources which he finds, produces, or creates, or which he obtains in voluntary exchange for his products or as a gift from their producers. >Free market/Economic theories. Rothbard III 938 Government spending/government expenditure/Rothbard: Government expenditures(1) are a coerced transfer of resources from private producers to the uses preferred by government offcials. It is customary to classify government spending into two categories: resourceusing, and transfer. 1) Resource-using expenditures frankly shift resources from private persons in society to the use of government: this may take the form of hiring bureaucrats to work for government - which shifts labor resources directly - or of buying products from business firms. 2) Transfer payments are pure subsidy spending - when the government takes from Peter to pay Paul. It is true that, in the latter case, the government gives "Paul" money to decide the allocation as he wishes, and in a sense we may analyze the two types of spending separately. Rothbard: But the similarities here are greater than the differences. For, in both cases, resources are seized from private producers and shifted to the uses which government offcials think best. After all, when a bureaucrat receives his government salary, this payment is in the same sense a "transfer payment" from the taxpayers, and the bureaucrat is also free to decide how further to allocate the income at his command. In both cases, money and resources are shifted from producers to nonproducers, who consume or otherwise use them.(2) >Bureaucracy/Rothbard, >Taxation/Rothbard. RothbardVsTradition: This type of analysis of government has been neglected because economists and statisticians tend to as- sume, rather blithely, that government expenditures are a measure of its productive contribution to society. In the "private sector" of the economy, the value of productive output is sensibly gauged by the amount of money that consumers spend voluntarily on that output. Curiously, on the other hand, the government's "productive output" is gauged, not by what is spent on government, but by what government itself spends! Government spending: No wonder that grandiose claims are often made for the unique productive power of government spending, when a mere increase in that spending serves to raise the government's "productive contribution" to the economy.(3) Rothbard III 939 Measuring/economics: What, then, is the productive contribution of government? Since the value of government is not gauged on the market, and the payments to the government are not voluntary, it is impossible to estimate. It is impossible to know how much would be paid in to the government were it purely voluntary, or indeed, whether one central government in each geographical area would exist at all. Rothbard III 940 Private sector/government: Since, then, the only thing we do know is that the tax-and-spend process diverts income and resources from what they would have been doing in the "private sector," we must conclude that the government's productive contribution to the economy is precisely zero. Gorvernment investments: In short, a characteristic of an investment expenditure is that the good in question is not being used to fulfill the needs of the investor, but of someone else - the consumer. Yet, when government confiscates resources from the private market economy, it is precisely defying the wishes of the consumers; when government invests in any good, it does so to serve the whims of government offcials, not the desires of consumers. Therefore, no government expenditures can be considered genuine "investment, and no government-owned assets can be considered capital. >Subsidies/Rothbard, >Transfer payments/Rothbard, >Government Services/Rothbard, >Resource-using activities/Rothbard, >Government policy/Rothbard. 1. Government expenditures are made from government revenue. 2. It may be objected that while bureaucrats may not be producers, other "Pauls" who receive subsidies on occasion are basically producers on the market. To the extent that they receive subsidies from the government, however, they are being nonproductive and living off the producers by compulsion. What is relevant, in short, is the extent to which they are in a relation ofState to their fellow men. We might add that, in this work, the term "State" is never meant in an anthropomorphic manner. "State" really means people acting toward one another in a systematically "stateish" relationship. I am indebted to Mr. Ralph Raico, of the University of Chicago, for the "relation of State" concept. 3. Originally, (…) Simon Kuznets contended that only taxes should gauge the government's productive output, thus measuring product by revenue as in the case of private firms. But taxes, being compulsory, cannot be used as a productive gauge. In contrast to the present method of national income accounting, Kuznets would have eliminated all government deficits from its "productive contribution."_____________Explanation of symbols: Roman numerals indicate the source, arabic numerals indicate the page number. The corresponding books are indicated on the right hand side. ((s)…): Comment by the sender of the contribution. Translations: Dictionary of Arguments The note [Concept/Author], [Author1]Vs[Author2] or [Author]Vs[term] resp. "problem:"/"solution:", "old:"/"new:" and "thesis:" is an addition from the Dictionary of Arguments. If a German edition is specified, the page numbers refer to this edition. |
Rothbard II Murray N. Rothbard Classical Economics. An Austrian Perspective on the History of Economic Thought. Cheltenham, UK: Edward Elgar Publishing. Cheltenham 1995 Rothbard III Murray N. Rothbard Man, Economy and State with Power and Market. Study Edition Auburn, Alabama 1962, 1970, 2009 Rothbard IV Murray N. Rothbard The Essential von Mises Auburn, Alabama 1988 Rothbard V Murray N. Rothbard Power and Market: Government and the Economy Kansas City 1977 |
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> Counter arguments against Rothbard
> Counter arguments in relation to Government Spending
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