POWER & MARKET GOVERNMENT AND THE ECONOMY MURRAY N. ROTHBARD FOURTH EDITION Ludwig von Mises Institute AUBURN, ALABAMA Front cover: The Money Lenders by Quentin Massys or Metsys (c. 1466–1530). The picture hangs in the Museo de Bellas Artes, Bilbao, Spain. Permission was obtained from The Bridgeman Art Library (IND54176). Copyright © 1970 by Institute for Humane Studies Copyright © 1977 by Institute for Humane Studies, second edition Copyright © 2004 by Ludwig von Mises Institute, third edition, Scholar’s Edition, Man, Economy, and State with Power and Market Copyright © 2006 by Ludwig von Mises Institute, fourth edition All rights reserved. Written permission must be secured from the publisher to use or reproduce any part of this book, except for brief quotations in critical reviews or articles. Published by the Ludwig von Mises Institute, 518 West Magnolia Avenue, Auburn, Alabama 36832-4528. 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Ward, Thomas Winar, Dr. Steven Lee Yamshon, Mr. and Mrs. Leland L. Young, Robert S. Young CONTENTS PREFACE TO THE FOURTH EDITION . ix CHAPTER 1—DEFENSE SERVICES ON THE FREE MARKET . .1 CHAPTER 2—FUNDAMENTALS OF INTERVENTION 1. Types of Intervention . 11 2. Direct Effects of Intervention on Utility . 15 A. Intervention and Conflict . 15 B. Democracy and the Voluntary. 19 C. Utility and Resistance to Invasion. 21 D. The Argument from Envy. 22 E. Utility Ex Post. 23 CHAPTER 3—TRIANGULAR INTERVENTION 1. Price Control . 29 2. Product Control: Prohibition . 40 3. Product Control: Grant of Monopolistic Privilege . 43 A. Compulsory Cartels . 48 B. Licenses . 48 C. Standards of Quality and Safety . 50 D. Tariffs. 55 E. Immigration Restrictions . 61 F. Child Labor Laws . 65 G. Conscription . 67 H. Minimum Wage Laws and Compulsory Unionism . 68 I. Subsidies to Unemployment . 69 J. Penalties on Market Forms . 69 K. Antitrust Laws. .71 L. Outlawing Basing-Point Pricing . 75 M. Conservation Laws . 76 vii viii Power and Market: Government and the Economy N. Patents . 87 O. Franchises and “Public Utilities” . 92 P. The Right of Eminent Domain . 93 Q. Bribery of Government Officials . 95 R. Policy Toward Monopoly . 97 Appendix A: On Private Coinage . 98 Appendix B: Coercion and Lebensraum. 100 CHAPTER 4—BINARY INTERVENTION: TAXATION 1. Introduction: Government Revenues and Expenditures . 103 2. The Burdens and Benefits of Taxation and Expenditures . 105 3. The Incidence and Effects of Taxation. 110 Part I: Taxes on Incomes . 110 A. The General Sales Tax and the Laws of Incidence . 110 B. Partial Excise Taxes; Other Production Taxes . 116 C. General Effects of Income Taxation . 118 D. Particular Forms of Income Taxation. 125 (1) Taxes on Wages . 125 (2) Corporate Income Taxation. 125 (3) “Excess” Profit Taxation . 127 (4) The Capital Gains Problem . 128 (5) Is a Tax on Consumption Possible?. 134 4. The Incidence and Effects of Taxation. 137 Part II: Taxation on Accumulated Capital . 137 A. Taxation on Gratuitous Transfers: Bequests and Gifts . 139 B. Property Taxation. 139 C. A Tax on Individual Wealth . .144 5. The Incidence and Effects of Taxation. 145 Part III: The Progressive Tax. 145 6. The Incidence and Effects of Taxation. 150 Part IV: The “Single Tax” on Ground Rent . 150 7. Canons of “Justice” in Taxation . 168 A. The Just Tax and the Just Price. 168 B. Costs of Collection, Convenience, and Certainty . 170 Contents ix C. Distribution of the Tax Burden. 172 (1) Uniformity of Treatment. 172 a. Equality Before the Law: Tax Exemption. 172 b. The Impossibility of Uniformity . 175 (2) The “Ability-to-Pay” Principle . 178 a. The Ambiguity of the Concept. 178 b. The Justice of the Standard . 181 (3) Sacrifice Theory. 185 (4) The Benefit Principle . 190 (5) The Equal Tax and the Cost Principle . 194 (6) Taxation “For Revenue Only” . 198 (7) The Neutral Tax: A Summary . 198 D. Voluntary Contributions to Government. 199 CHAPTER 5—BINARY INTERVENTION: GOVERNMENT EXPENDITURES 1. Government Subsidies: Transfer Payments . 207 2. Resource-Using Activities: Government Ownership versus Private Ownership . 213 3. Resource-Using Activities: Socialism . 226 4. The Myth of “Public” Ownership . 230 5. Democracy. 233 Appendix: The Role of Government Expenditures in National Product Statistics . 246 CHAPTER 6—ANTIMARKET ETHICS: A PRAXEOLOGICAL CRITIQUE 1. Introduction: Praxeological Criticism of Ethics. 251 2. Knowledge of Self-Interest: An Alleged Critical Assumption . 254 3. The Problem of Immoral Choices . 257 4. The Morality of Human Nature . 260 5. The Impossibility of Equality . 262 6. The Problem of Security . 267 7. Alleged Joys of the Society of Status . 269 8. Charity and Poverty . 272 9. The Charge of “Selfish Materialism” . 275 10. Back to the Jungle? . 278 x Power and Market: Government and the Economy 11. Power and Coercion . 280 A. “Other Forms of Coercion”: Economic Power . 280 B. Power Over Nature and Power Over Man . 283 12. The Problem of Luck . 287 13. The Traffic-Manager Analogy . 288 14. Over- and Underdevelopment . 288 15. The State and the Nature of Man . 289 16. Human Rights and Property Rights. 291 Appendix: Professor Oliver on Socioeconomic Goals . 294 A. The Attack on Natural Liberty . 295 B. The Attack on Freedom of Contract. 298 C. The Attack on Income According to Earnings. 301 CHAPTER 7—CONCLUSION: ECONOMICS AND PUBLIC POLICY 1. Economics: Its Nature and Its Uses . 311 2. Implicit Moralizing: The Failures of Welfare Economics. 314 3. Economics and Social Ethics . 317 4. The Market Principle and the Hegemonic Principle. 319 INDEX . 325 PREFACE TO THE FOURTH EDITION DIRECTIONS FOR USE: IF YOU hate the state, read this book. If you love the state, read this book! Students, educated laymen, and academics can all profit from Power and Market. In this vol- ume, Murray N. Rothbard uses positive economics to analyze various schemes and proposals to alter or eliminate market out- comes. Where government supporters come up with numerous reasons why government “needs” to do this or that, Rothbard puts constraints on people’s political fantasies. He shows how the state is not a benign entity that can easily fix problems in the world. Rather, the state is an imperfect and inherently coercive apparatus. Power and Market, now 35 years after its original publication, is still one of the most systematic economic analyses of govern- ment intervention around. Rothbard’s principles treatise Man, Economy, and State describes the economics of market exchange; Power and Market describes the economics of government inter- vention.1 Rothbard makes it clear that economics is a value free science that provides no ultimate ethical judgments, but he also points out that economics can be used to criticize certain posi- tions: “If an ethical goal can be shown to be self-contradictory and conceptually impossible of fulfillment, then the goal is clearly 1Rothbard originally wrote this volume as the final third of the 1,500- page manuscript for Man, Economy, and State. The length of the manu- script and the nonmainstream political conclusions in his analysis of gov- ernment were too much for some, however, so Man, Economy, and State and Power and Market were published as separate volumes in 1962 and xi xii Power and Market: Government and the Economy an absurd one and should be abandoned by all.”2 In certain ways, the book could be considered an early example of public choice economics because it uses economics to analyze govern- ment, and it certainly takes the romance out of politics. But Rothbard differed from public choice economists such as James M. Buchanan and Gordon Tullock (and, for that matter, all of his contemporaries) in that he consistently viewed the state as a coercive institution, an institution that was not created to make everyone better off.3 The central chapters of Power and Market offer a typology and discussion of different types of state intervention. Binary intervention is.