Frdric Bastiat and the Analysis of the State:

A Bastiat-Inspired Theory of Government Intervention

Holden Diethorn

Introduction: Bastiats Definition of Government

In 1848, French laissez-faire economist and classical liberal political theorist Frdric
Bastiat set out to precisely define government in an article aptly entitled Government.
Beginning the essay, Bastiat expresses his wish that someone would offer a prizefor a
good, simple, and intelligible definition of the word Government, and exclaims, What an
immense service it would confer on society!1 In pursuance of his hypothetical prize, Bastiat sets
forth his own definition of government: Government is that great fiction, through which
everybody endeavors to live at the expense of everybody else.2 The first step in analyzing
whether or not Bastiats definition is worthy of the prize is through interpretation of its meaning.
How is Bastiats definition to be interpreted? While not a universally accepted method of
literary interpretation, one prudential approach considers what meaning the author originally
intended by his own words, even if the author is, in fact, dead. In stating that government is a

Frdric Bastiat, "Government," In The Bastiat Collection, Second Edition, 95-107 (Auburn: The
Ludwig von Mises Institute, 2007), 95.
2

Ibid. 99. (Authors emphasis).

great fiction, Bastiat is, undoubtedly, not asserting that government is a non-existent institution
that, in actuality, has no effect on corporeal reality. Bastiat refers to government as a great
fiction due to the publics unrealistic appraisal of government. Firstly, Bastiat characterizes the
public as viewing government as:
a beneficent and inexhaustible beingwhich has bread for all mouths, work
for all hands, capital for all enterprises, credit for all projects, salve for all
wounds, balm for all sufferings, advice for all perplexities, solutions for all
doubts, truths for all intellects, diversions for all that want them, milk for infancy,
and wine for old agewhich can provide for all our wants, satisfy all curiosity,
correct all errors, repair all our faults, and exempt us henceforth from the
necessity for foresight, prudence, judgment, sagacity, experience, order, economy,
temperance and activity.3
Secondly, the public, Bastiat states, has two hopesmany benefits and no taxes.4 These
hopes are incompatible, but man can only deduce this if he understands that government is not an
inexhaustible source of wealth, but rather a group of individuals that can only give with one hand
what it takes with the other. 5 Thus, the publics view of government is a fantasy; the only
government that could possibly meet the publics demands is one of fiction.
Having explained why Bastiat describes government as a fiction, the next task is to
explain why Bastiat considered government to be chiefly an institution through which
everybody endeavors to live at the expense of everybody else. 6 Bastiat notes that man naturally
seeks to avoid suffering and pain, yet he must endure suffering in order to subside, unless he is to
live off the work of others. Thus, man endeavors to live at others expense because this is the

Ibid. 97.

Ibid. 102. (Authors emphasis).

Ibid.99, 102.

Ibid. 99. (Authors emphasis).

only escape he has from choosing between the misery of privation and the pain of work. The
origin of slavery and of plunder is, according to Bastiat, the wish to reap all the gains and none
of the pain of anothers work.7 The sentiment to gain at the expense of another did not die with
slavery. Instead, it is now expressed through mans beseeching of government to be the
intermediate body between himself and the victims of his plunder. With the use of government,
man sees that he can have all the advantages of plunder, without its risk or its disgrace!8
Notwithstanding Bastiats analysis, it is surely not a fiction that some people in society
live at the net expense of others. However, in accordance with Bastiats definition, it is a fiction
to believe that all people in society can live at the net expense of others. If one group, through
the use of government intervention, obtains more resources (whether this is in the form of
money, goods, or services) than they have earned, this necessarily means that the other group is
not able to enjoy the full fruits of their labors. In terms of money, government redistribution is a
zero-sum affair that results in a fundamental class struggle within society. This class struggle is
insightfully elucidated by John C. Calhoun in A Disquisition on Government:
The necessary resultof the unequal fiscal action of the government is to divide
the community into two great classes: one consisting of those who, in reality, pay
the taxes and, of course, bear exclusively the burden of supporting the
government; and the other, of those who are recipients of their proceeds through
disbursements, and who are, in fact, supported by the government; or in fewer
words, to divide it into taxpayers and tax-consumers. The effect, then, of every
increase [in taxes and disbursements] is to enrich and strengthen the one, and
impoverish and weaken the other.9
7

Ibid. 98.

Ibid. 99.

John C. Calhoun, A Disquisition on Government (New York: Liberal Arts Press, 1953), 14-18.
Calhouns analysis follows that of Bastiat: it is proved that Government cannot satisfy one party without adding
to the labor of others. Bastiat, 99.

In light of the analysis, one can perceive that the expansion of government programs through
further tax and spend policies is identical to an expansion of legal plunder, with tax-consumers
being the recipients of the loot derived from the labor of the net taxpayers.10 This legal plunder is
represented in necessarily redistributive policies, that is, government policies that confiscate and
allocate wealth in ways that consumers in the purely free market would not have approved
through their market-interactions.11 Redistributive policies replace the free market allocation of
wealth, determined by consumers, in favor of the political allocation of wealth, determined by
politicians.12 Political redistribution of wealth destroys the production-income nexus of
capitalism. Now, one is not forced to produce something that is valued by others in order to gain
wealth. One simply has to clamor to politicians for enactment of ones own favored
redistributionist policy in order to enjoy the earned income of others, resulting in a repudiation of
consumer decisions in the market.

10

But how is this legal plunder to be identified? Quite simply. See if the law takes from some persons
what belongs to them, and gives it to other persons to whom it does not belong. Then abolish this law withoutdelay, for it is not only an evil itself, but also it is a fertile source for further evils because it invites reprisals. If such
a law is not abolished immediately, it will spread, multiply, and develop into a system. Frdric Bastiat, "The
Law," (London: The Institute of Economic Affairs, 2001), 35.
11

The present author diverges from Robert Nozicks classification of redistributive policies. Nozick states
that redistributive applies to type of reasons for an arrangement, rather than to an arrangement itself. We might
elliptically call an arrangement redistributive if its major (only possible) supporting reasons are themselves
redistributive. Finding compelling nonredistributive reasons would cause us to drop the label. Whether we say an
institution that takes money from some and gives it to others is redistributive will depend upon why we think it does
so. Robert Nozick, Anarchy, State, and Utopia, (US: Basic Books, Inc., 1974), 27.
Redistributive refers to the means of a policy that favors the political distribution of wealth over the
purely free market distribution of wealth determined by consumers, no matter the reasons for the policy. However,
Nozick is correct in asserting that returning stolen money is not redistributive (Nozick, 27). See footnote 21 for an
interrelated analysis of why policies protecting person and property are not redistributive. However, if the
government is paid out of taxes to provide the service of returning stolen money or protecting persons from murder,
this is to be considered redistributive. See discussion below in the section entitled The Purely Free Market: The
Imaginary Construction of a Non-Coercive Society.
12

For a discussion of the consumer sovereignty of the free market, see Ludwig von Mises, Human Action,
The Scholars Edition, (Auburn: The Ludwig von Mises Institute, 2008), 241-242, 270-272, 605-606, 679-680.

The Usefulness of Bastiats Definition: Economic Analysis of Government Policy

At this point, Bastiats definition of government as that great fiction, through which
everybody endeavors to live at the expense of everybody else can be regarded as essentially
true. But how foundational is this definition of government? Does not government represent
more than just an engine of legal plunder? For instance, Bastiats definition fails to touch upon
what has been considered governments longest standing role as a geographical monopolist and
regulator of legal violence. In his definition, Bastiat does not even attempt to define the proper
role of government. However, the attractiveness of Bastiats definition is not to be found in
looking for an explication of the legitimate ends of government. Rather, the efficacy of Bastiats
definition is that it applies regardless of the ends, legitimate or illegitimate, pursued by
government. This is because the definition captures the redistributive nature of the necessary
means of government. Even when government provides what many believe to be, at minimum,
the legitimate ends of governmentnational security, a justice system, and laws regulating the
use of violent forceit acts as a redistributionist body. Every program, due to its reliance on
coercion, inevitably involves taking from some persons what belongs to them, and giving it to
other persons to whom it does not belong in the form of government provided money, goods,
or services.13
Bastiats definition of government leads one to evaluate government through the welldeveloped lens of cost-benefit analysis. It is one of the primary and most popular tasks of the
economist to engage in cost-benefit analysis when evaluating government policy. In order to
engage in cost-benefit analysis, the economist must obviously deduce the costs and the benefits

13

Bastiat, "The Law," 35.

associated with the specific policy. However, the only way to gain knowledge as to the benefits
and costs of a program is to first determine who benefits and who incurs the costs.
The layman can discover the benefits of any government program. The benefits are seen
in the form of that which is tangible, whether this is in the form of roads, schools, or food for the
poor. However, the costs associated with these programs are less visible. It is precisely the role
of the economist, in accordance with Bastiats fundamental proposal in 1850, to avoid
judging of things by what is seen only, but to judge of them by that which is not seen.14 That is,
the economist must take into account both the benefits and costs, opportunity costs inclusive, of
any government action. It is the opportunity costs that are unseen, and it is the special role of the
economist to be able to elucidate the opportunity costs of any economic action, including
government intervention. The economist must first be able to visualize that which is never
actualized, a future that would have resulted if government action were not undertaken. Then, he
must demonstrate how the existence of government action alters reality from the course it would
follow in its absolute absence. Economics is a science, but the use of economic intuition is an
art.15 The economist, guided by the apodictically valid theorems of economics, must artistically
paint a picture of the future, in fine brush strokes as to not omit any relevant detail, in order to
fully capture every cost and every benefit of a future that may never come to pass.16 His picture

14

Frdric Bastiat, "That Which Is Seen, and That Which Is Not Seen," In The Bastiat Collection, Second
Edition, 1-48. (Auburn: The Ludwig von Mises Institute, 2007), 9.
15

The art of economics consists in looking not merely at the immediate but at the longer effects of any act
or policy; it consists in tracing the consequences of that policy not merely for one group but for all groups. Henry
Hazlitt, "Economics in One Lesson, Fiftieth Anniversary Edition" (Baltimore: Laissez Faire Books, 1996), 5.
Hazlitts book is very much an explication and extension of Bastiats previous work That Which Is Seen
and That Which Is Not Seen.
16

For a discussion of the epistemological basis and basic claims of the universally-valid and a priori
science of human action, praxeology, of which economics is a part, see Ludwig von Mises, "The Task and Scope of

is comprehensible and accurate, yet remains, like a work of art or literature, a prototype of
reality, not reality itself. The foresight of the economist lays out the necessary general truths of a
possible reality; the economist can predict, with certainty and precision, the qualitative effects of
a policy, but cannot, a priori, establish how quantitatively significant each effect will be in the
future, or at what moment in time each market force will most assert itself.17 The realization of
both the power and the limitations of general economic analysis are important if one is to
understand the scope and difficulties of cost-benefit analysis.
Bastiats Definition Applied: Analysis of Government Intervention
Having briefly analyzed the character of economic intuition and its product economic
analysiswe are in a position to utilize this intuition to support Bastiats underlying claim that
government can only give to some groups what it takes from another group, that it is a fiction to
believe that all people in society can live at the net expense of others through the magical
blessings of government. Before such an analysis, it is helpful to emphasize that all coercive
intervention into the purely free market, whether conducted by the government, a gang, or a lone
criminal, necessitates diminishing one groups money wealth or utility in order to raise another
groups money wealth or utility. In addition, it is useful to classify different types of government
intervention: autistic, binary, and triangular intervention.18 Austrian economist Murray N.
the Science of Human Action," In Epistemological Problems of Economics, 1-69, (Auburn: The Ludwig von Mises
Institute, 2003), 13-18, 24-37; and Mises, Human Action, The Scholars Edition, 1-140. For interpretation of Misess
argument that economics is an a priori science, see Jrg Guido Hlsmanns introduction to Misess Epistemological
Problems of Economics: xliii-xlv; and Murray N. Rothbard, In Defense of Extreme Apriorism, Southern
Economic Journal (January 1957): 314-20.
17

At best, the econometrician can forecast a quantitative interval for the effects of a policy utilizing
empirical-historical data, but not without assuming that the past is necessarily an accurate predictor of the future.
18

Murray N. Rothbard, Man, Economy, and State with Power and Market, Scholar's Edition, (Auburn:
The Ludwig von Mises Institute, 2009), 1057-1061. For detailed analysis of many policies categorized by their
intervention-type, see Rothbard, 1075-1295.

Rothbard, in Power and Market, defined these scientific classifications of coercive intervention
in the following way:
Autistic intervention occurs when the invader coerces a subject without receiving
any good or service in return. Widely disparate types of autistic intervention are:
homicide, assault, and compulsory enforcement or prohibition of any salute,
speech, or religious observance. Binary intervention occurs when the invader
forces the subject to make an exchange or unilateral gift of some good or
service to the invader. Highway robbery and taxes are examples of binary
intervention, as are conscription and compulsory jury service. Whether the binary
hegemonic relation is a coerced gift or a coerced exchange does not really
matter a great deal. The only difference is in the type of coercion involved.
Slavery, of course, is usually a coerced exchange, since the slaveowner must
supply his slaves with subsistence. A triangular interventionoccurs when the
invader compels a pair of people to make an exchange or prohibits them from
doing so. Thus, the intervener can prohibit the sale of a certain product or can
prohibit a sale above or below a certain price. We can therefore divide triangular
intervention into two types: price control, which deals in the terms of exchange,
and product control, which deals with the nature of the product or of the
producer.19

I: Autistic Intervention
Equipped with these classifications, we can now analyze how each type of government
intervention into the purely free market results in redistribution of wealth, with wealth defined as
money and/or utility. The first types of intervention are autistic. Autistic intervention occurs
when a coercive power restricts an individuals use of his person or property outside of
exchange. Every autistic intervention of government results in a decrease in utility of one group

The intellectual influence of Bastiat on Rothbard is apparent in more than just his published works.
Between 1953-1959, Rothbard was the so-called leader of a group of intellectual friends who met regularly at
Rothbards apartment in Manhattan under the self-given name The Circle Bastiat. (David Gordon, The Circle
Bastiat on The Circle Bastiat blog, http://bastiat.mises.org/2012/03/the-circle-bastiat/ (accessed on January 10,
2013).
19

Ibid. 1059, 1075.

and an increase of utility for another group.20 Such policies can be labeled redistributive because
they alter the utility-configuration of society in ways that consumers in the purely free market
would not have demonstrated approval through their market-interactions. Instead, the
demonstrated policy preferences of politicians result in one group gaining utility at the expense
of another groups loss in utility.
One example of an autistic intervention is compulsory prohibition of certain religious
practices.21 When religious practices are coercively prohibited, the would-be religious
practitioners lose utility, while another group of individuals hostile to these religious practices
gain more in utility than they would have had this prohibition not been enacted. Another form of
autistic intervention is a prohibition or regulation of political speech. The would-be political
speakers affected by the policy lose utility, while another group of individuals that finds the
particular form of political speech abhorrent gains in utility. In summary, all autistic

20

When a policy results in an increase in the utility of a group, this means that individuals comprising the
specified group gain a greater amount of satisfaction than they otherwise would in the purely free market where the
policy would not be in place. Similarly, a policy that results in a decrease in the utility of a groups means that
individuals comprising the specified group gain a lesser amount of satisfaction than they otherwise would if the
policy were not put into place.
Knowledge of the economic concept of subjective utility is necessary in order to understand the analysis. It
is not to be confused with varying moral definitions of utility. For a brief and clear discussion of the subjective
theory of economic value/utility, see Thomas C. Taylor, An Introduction to Austrian Economics, (Auburn: The
Ludwig von Mises Institute, 2008), 40-41; and Mises, Human Action, 120-27.
21

The necessary and sufficient condition of a purely free market society is absolute respect for each
individuals body and private property. Notice that this condition does not allow for coercive autistic interventions
such as the restriction of religious practices. Thus, a restriction of religious practices results in a different utilityconfiguration than would be determined by consumers in a purely free market society. In contrast, consider the
compulsory prohibition of murder. The prohibition of murder results in a loss of utility for the would-be murderers
and an increase in utility for the would-be victims if the prohibition were not in place. This cannot be considered an
autistic intervention into the market, but rather an autistic policy that supports the purely free market. Thus, the
policy cannot be considered redistributive in the sense that the present author has defined the word as policies
that confiscate and allocate wealth in ways that consumers in the purely free market would not have demonstrated
approval through their market-interactions (3-4). This is because the existence of a purely free market society
presupposes respect for each persons physical integrity.

interventions, such as prohibitions of political speech and religious practices, involve a

redistribution of utility, but not necessarily property.
II. Binary Intervention
The second form of intervention is binary intervention. Binary intervention occurs when
an intervener enforces a coerced exchange between an individual and himself. Every binary
intervention of government results in a decrease in the money wealth of one group and an
increase in the money wealth of another group.22 Such policies can be labeled redistributive
because they alter the money and utility-configuration of society in ways that consumers in the
purely free market would not have demonstrated approval through their market-interactions.
Instead, the demonstrated policy preferences of politicians result in one group gaining wealth at
the expense of another groups diminution in wealth. Binary intervention falls under two general
forms: expropriation of value and expenditure. These two forms of binary intervention can, in
particular cases, be evaluated independently as long as one keeps in mind that, in actuality, the
process of expenditure is dependent upon expropriation of value.23
The first general form of binary intervention is expropriation of value. Expropriation of
value can occur in three physical forms: property confiscation, money expropriation, and

22

Since money is an object with an associated positive utility for all money holders and users, every
redistribution of money wealth implies a concurrent change in the utility-configuration of money holders and users
in society. A gain in money implies a gain in utility, and a loss in money implies a loss in utility. If money were an
object of disutility for an individual, he would simply abandon his money freely and refuse to hold and use money.
Thus, the present author is correct in stating that all money holders and users in a purely free market society must
necessarily associate positive utility with an increase in money-wealth. Whether these holders of money spend
increases in money on themselves or for the direct benefit of others makes no economic difference.
23

For example, one can analyze the economic effects of the binary intervention of income taxation without
analyzing how the taxes are spent, just as one can analyze the binary intervention of a subsidy without reference to
how the funds for the subsidy were attained. However, any analysis of a real-world policy proposal will need to
consider both processes of binary intervention if it is to be comprehensive in character.

currency manipulation. Applied to government institutions, these three forms of value

expropriation are known as eminent domain, taxation, and inflation.24
Eminent domain involves coercive property confiscation, with or without what the
governing body determines to be fair compensation. The only time that eminent domain comes
into practice is when an individual refuses to voluntarily exchange his property with the
government for a price offered by the government. Thus, eminent domain is not enacted unless
the individual whose property is to be confiscated does not expect to profit by the previous
proffered terms of non-coercive exchange.25 Therefore, eminent domain results in a decrease in
utility for the individual who had his property coercively confiscated while increasing the utility
of the government officials and private individuals who support the confiscation.
Taxation is the coercive expropriation of money and is regarded as the chief source of
government revenue. Coercive expropriation is only used as a means for raising revenues when
expropriators cannot obtain funds non-coercively from individuals. Taxation always has a twofold effect: First, taxation distorts the allocations of wealth in society from those allocations that
consumers have or would have determined in a purely free market, and second, it severs the
production-income, or production-distribution, nexus of the purely free market and creates the
problem of political distribution of wealth.26 In other words, all taxation is necessarily
redistributive.

24

Here I part with Rothbard, who considers the right of eminent domain to be a form of triangular
intervention. Rothbard, 1139-41.
25

For discussion of profit and loss as primarily psychical phenomena, see Mises, Human Action, 97-98,

26

Rothbard, 1154.

205-06.

One example of taxation is proportional income taxation. Income taxation acts as a

penalty to productive activity. In other words, it is a penalty on service to the consumer, since all
incomes are ultimately determined by consumer dollar votes in a purely free market. Quite
obviously, the immediate effect of the taxation is to diminish the income of producers.
Consequently, penalizing producers for servicing consumers reduces the utility that a producer
associates with increasing the quantity or quality of service to consumers because it reduces the
additional, or marginal, utility producers associate with an increase in income because the State
will confiscate a fraction of these increased earnings. Therefore, producers will not value
increasing the value of production as much as they would in the purely free market, and this
translates into a cost born by consumers in the form of higher prices and/or lower quality goods
than would exist without the imposition of the income taxation. The only people that
economically benefit from the income tax are those who receive funds derived from the tax.
The third type of expropriation of value is inflation. Inflation is simply an increase in the
supply of money, and this increase in the supply of money induces a decrease in the purchasing
power of each monetary unit, resulting in a rise in prices known as price-inflation. Individuals
with fixed nominal incomes or nominal incomes that rise less quickly than the level of priceinflation are hit with a hidden tax in the form of a reduced real income. In simpler terms, these
individuals are not able to buy as many goods and services at the same quality as they had been
able to buy before inflation.
But how is inflation redistributive? Inflation is redistributive because it benefits a specific
group of individuals and hurts another group of individuals precisely because all prices in the
economy do not simultaneously adjust in response to the increase in the monetary base. Inflation
benefits those who first receive the injection of credit into the economy and worsens the

conditions of those who are last to gain access to the new credit that has circulated throughout
the economic system.27 Given the current banking structure in the United States, the groups and
institutions that are likely to, in the short-term, benefit from inflation are banks, large
corporations, government officials and contractors, and borrowers because these are the entities
that are likely to first receive new credit or benefit from the interest rate-reducing effect of
increases in the money supply.28
Why do those who first receive new credit benefit from inflation? These groups benefit
because they are able to spend this new money before prices in the market have risen, for the
prices will not begin to rise until the new money makes its way throughout the economy. These
holders of new money will, in effect, be able to buy items in the market without having
produced, that is, without having satisfied consumers. These holders of new money, with their
wealth suddenly increased, will be willing and able to buy more products at higher prices
because the marginal utility of money for these holders has decreased. Those producers who first
interact with the holders of new credit will also reap a benefit because they will be able to raise
the prices of their products quicker than the other producers in the economy who have not yet
27

It [inflation] can only benefit a part of the community at the cost of a corresponding loss by the other
part.The cost must be borne by those classes or countries that are the last to be reached by the fall in the value of
money. Ludwig von Mises, The Theory of Money and Credit, (Auburn: The Ludwig von Mises Institute, 2009),
208.
28

For discussion of the Austrian business cycle theory which posits that, in the longer run, inflation leads to
distorted interest rates which are the source of boom-bust cycles, see Mises, A Theory of Money and Credit, 359365; F.A. Hayek, Monetary Theory and the Trade Cycle, In Prices and Production and Other Works, 1-130,
(Auburn: The Ludwig von Mises Institute, 2008), 73-125; F.A. Hayek, Prices and Production, In Prices and
Production and Other Works, 189-329, (Auburn: The Ludwig von Mises Institute, 2008), 265-273; and Rothbard,
Man, Economy, and State with Power and Market, 994-1008. For a more recent treatment utilizing empirical data,
see Joseph T. Salerno, A Reformulation of Austrian Business Cycle Theory in Light of the Financial Crisis, The
Quarterly Journal of Austrian Economics (Spring 2012): 3-44. For a mainstream research approach that lends some
credence to the Austrian theory of the business cycle, see scar Jord, Moritz Schularick, and Alan M. Taylor,
Financial Crises, Credit Booms, and External Imbalances: 140 Years of Lessons, NBER Working Paper No.
16567 (December 2010).

been confronted with the newly circulated credit. This process will continue until the effect of
inflation, price-inflation, is encountered by the group of individuals who have not yet
encountered the new credit. Eventually, the new credit will reach their hands, but not until after
they have experienced a loss in their real wealth as effected by the price-inflation in the
economy. Thus, the groups that receive the new money first gain wealth at the expense of those
who are last to receive the new money.
The second general form of binary intervention is expenditure. Expenditure cannot occur
without the previous raising of revenues. If revenue for expenditure is raised through
expropriation of value, then expenditure implies redistribution of wealth. Expenditure, of course,
can occur from revenues non-coercively obtained. Expenditure out of this revenue would not be
considered redistributive insofar as such expenditure would occur in the purely free market.
Suffice to say, the government relies upon expropriation of value to finance expenditure that
would not be made in the purely free market, and this is the type of expenditure that is classified
as a binary intervention. Having independently analyzed the redistributive nature of
expropriation of value, the redistributive nature of expenditures made possible by these
expropriations can now be independently analyzed.
Government subsidy is the first form of government expenditure. Subsidies only occur if
the body receiving the subsidy would not have received those same funds from consumers in the
purely free market; otherwise, the practice of subsidy would be superfluous and not achieve any
unique aim other than a futile exercise in power. Either way, it is practically certain that even if a
firm could have obtained the same revenues in the purely free market, these revenues would have
been derived from different individuals than those who have had their earned value expropriated
by government in order to fund the subsidy. Thus, subsidies are necessarily redistributive.

In a purely free market economy, the firms most efficient at producing value for
consumers succeed while those firms that are inefficient fail. As inefficient firms go out of
business and liquidate their assets, these assets are transferred from these inefficient and less
value-productive firms to more efficient and more value-productive firms looking to expand
business. However, when subsidy enters the picture, inefficient firms are able to succeed insofar
as they are able to obtain government subsidy. Efficient firms that would have profited from the
purchase of the assets of less efficient and now subsidized firms are now unable to obtain these
assets because the inefficient firms remain in business, held up by the crutches of government
subsidies. In short, efficient firms are punished for the benefit of the inefficient firms.
Consequently, consumers are hurt by the inefficient firms continued existence because the
subsistence of the inefficient firm means that resources are locked into less than optimal valueproductive uses.
In addition to these effects, Professor Rothbard notes a less obvious economic cost to be
associated with subsidies: the diversion of energy from production to politics.29 Not only
energy, but funds will be diverted from investing in production to investing in lobbyists, political
parties, and politicians in the hopes of receiving special privileges from government. The
existence of government subsidies opens the way to an allocation of wealth in accordance
with the ability of a person or group to gain control of the State apparatus.30 In summary,
subsidies redistribute wealth from consumers and efficient producers to inefficient producers and
political bodies.

29

Rothbard, 1256.

30

Ibid. 1255.

Another form of government expenditure is the resource-using activities of government.

All resource-using activities of government allocate wealth in ways that consumers in the purely
free market would not have approved through their market-interactions. This is because
government entities lack the tool of economic calculation: profit and loss. Without the tool of
economic calculation, there is no rational basis for determining what the optimal supply of a
specific good or service is in society. There is no pricing mechanism to coordinate the system. In
a purely free market, services and goods are provided by producers insofar as, in the long term,
these producers are at least breaking even, that is, making zero or positive profit. Firms abandon
production activities that result in long run losses. However, government has no way of telling if
it is allocating resources efficiently, for its funds are derived through coercive expropriation
rather than the non-coerced transactions of the purely free market. Having no way to determine
the optimal output, which is equal to the output-level of the purely free market, government
programs are inevitably redistributive. These programs shift wealth from people who would not
fund these activities, now undertaken by government, in the purely free market to government
employees working to provide these services. Public education and the maintenance of public
parks are only two of the thousands of government activities that can be classified as resourceusing government activities.
III. Triangular Intervention
The third and final form of intervention is triangular intervention. Triangular intervention
occurs when an intervener compels, prohibits, or in some way regulates an exchange between a
pair of individuals. Every triangular intervention of government results in a decrease in the
money wealth of one group and an increase in the money wealth of another group. Such policies
can be labeled redistributive because they alter the money and utility-configuration of society in

ways that consumers in the purely free market would not have demonstrated approval through
their market-interactions. Instead, the demonstrated policy preferences of politicians result in one
group gaining wealth at the expense of another groups diminution in wealth. Triangular
intervention involves either price control or product control.
Price control occurs when an intervener establishes the minimum selling price, the
maximum selling price, or an exact price for an item or service sold in the market. In addition,
price controls may be either ineffective or effective. If the government specifies that a gallon of
milk must not sell for less than $0.25, and the current market value for a gallon of milk
consistently varies between $3.00 and $4.00, the price floor will be ineffective, that is, it will not
effect the decisions of consumers and producers in the market. The price floor will be irrelevant,
and thus it will not be redistributive. Similarly, if the government mandates that no gallon of
gasoline be sold for more than $80, and the market price for gasoline is relatively stable at $3.79
per gallon, then the price ceiling will be ineffective. The important cases of price control to
consider are price floors set above the market price and price ceilings set below the market price.
As will be seen, both forms of effective price controls strip the market of its natural rationing
function which depends upon the flexibility of prices.
Price floors set above the market equilibrium price of a good will result in unsold
surpluses. That is, the quantity of the good supplied by producers will exceed the quantity
demanded by consumers. The quantity supplied will be greater than what it would be in the
purely free market because entrepreneurs are induced to shift resources into the market due to the
artificially higher price. However, this higher price also decreases the amount of consumers
willing and able to buy the product, thus decreasing the quantity demanded. Overproduction in
the industry occurs and firms that are unable to sell their output suffer losses unless the

government buys the excess product. A policy of government purchasing of surpluses at a set
minimum price will tend to exacerbate the surplus over time. Either way, effective price floors
are redistributive because they cause the movement of resources from other industries into an
industry which is not as value-productive to consumers as the price-level in the industry
suggests. In addition, if government tries to solve the issue by buying the surpluses, then further
redistribution occurs as more products are politically allocated by the government.
Two popular forms of price floors are minimum prices for agricultural products and
minimum wage policies. Minimum prices for agricultural products redistribute wealth from
other industries into agricultural industries. Governments may engage in buying surpluses, which
redistributes wealth from those paying the taxes to fund the governments expenditure to those
employed in the agricultural industry. Minimum wage policies, on the other hand, lead to a
surplus of labor known as unemployment. If all sectors of the economy must abide by a
minimum wage policy, permanent unemployment will persist. On the other hand, if one sector of
the economy is not covered by minimum wage policies, laborers displaced by the minimum
wage in the covered sector will likely seek employment in the uncovered sector. This increases
the supply of laborers in this uncovered sector and results in the reduction of real wage rate in
this sector. Thus, the minimum wage policy reduces the wealth of those who are employed in the
uncovered sector and those who would find employment in the covered sector were it not for the
minimum wage policy, while resulting in an increase in wealth for those who are able to get a
job at the minimum wage.
Price ceilings set below the market equilibrium price of a good will result in shortages.
That is, the quantity of the good supplied by producers will be less than the quantity demanded
by consumers. The quantity supplied will be less than what it would be in the purely free market

because entrepreneurs are induced to shift resources out of the market due to the artificially
lower price. However, this lower price also increases the amount of consumers willing and able
to buy the product, thus increasing the quantity demanded. Shortages occur and consumers
obtain goods based on a first come, first serve basis, unless an alternate form of rationing, such
as government rationing, is implemented. Either way, effective price ceilings are redistributive
because they cause the movement of resources out of one industry into industries that are not as
value-productive to consumers, in actuality. In addition, in the absence of government rationing,
those consumers that come first to market gain at the expense of those who are last to market.
Lastly, price ceilings stimulate black markets for the regulated product, where, since the supply
is limited in the legal market, black marketeers are able to charge higher prices than would be
established on the purely free market. Thus, wealth is also redistributed from those who would
legally produce and sell in the purely free market to those who illegally produce and sell in the
black market.
A form of price ceiling would be a maximum price on gasoline below the market price.
At a lower than market price, a gas shortage would occur and prices would lose their rationing
function. To aid the people, the government may try to ration the smaller supply of oil. No matter
the governments action or inaction, a price ceiling below the market equilibrium price hurts
consumers and is a redistributive policy.
Product control occurs when government regulates or prohibits the selling of a product,
or when the government grants monopolistic privileges to some producers in order to prohibit
other producers from entering the market and competing with the privileged producers. Product
prohibition hurts both producers and consumers. Producers are unable to produce in a market

that, if legalized, would result in profitable enterprise. Consumers are not able to consume a
product that they desire, and thus suffer a decrease in utility.
Who benefits from product prohibition? Three groups: those who find the production and
consumption of the product abhorrent, individuals employed in new government task forces, and
black market producers. Government task forces aimed at enforcing the product prohibition
come into being and provide an increase in government workers. These workers benefit from the
existence of the prohibition. In addition, the illegalization of the market for the product creates
an incentive for a black market to operate and expand. The cost of product prohibition is
increased profitability in the black market for that product. This increased profitability will
induce more black market firms to enter the market. This then results in costs to police forces
who try to crack down on the illegal trade of the product. As police forces crack down, less and
less black market "firms" will remain in the industry. However, this is counterproductive. Less
competition leads to more price control by the firms still remaining in the black market. These
illegal firms have their profits increased due to an increase in prices and market share, and they
can plunge these profits into programs aimed at discovering and creating innovative and
secretive methods of distribution, and these methods make future police work more difficult and
more costly if such police work is to be effective. Popular forms of product prohibition include
drug prohibition and the prohibition of certain weaponry.
Product regulation is another form of product prohibition. It is prohibition of a certain
method of production or the production of a product lacking certain quality or safety standards.
Products that have to meet minimum quality and safety standards are likely to be more costly
than products that do not have to achieve these same standards. Thus, regulation of the product
increases the costs of production, therefore reducing supply and increasing the price on the

market. This in turn leads to less consumers being willing and able to buy the product. Therefore,
product regulation results in a decrease in utility for producers who could profit from producing
a product that fails to meet government standards and a decrease in utility for consumers who
would be willing and able to buy the lower quality and cheaper good. After a product is
regulated, some firms may no longer find it profitable to produce the product. Thus, safety and
quality standards lead to a barrier to entry into the market place and benefit those firms that can
handle the increased costs due to their more efficient production methods and/or economies of
scale. In addition, if the regulations are sufficiently restrictive, a black market in products that do
not meet government requirements may thrive.
The last form of product control is the granting of monopolistic privileges that give some
firms the exclusive legal right to produce or sell a particular product to supply a particular
service. Examples of monopolistic privileges include government licensing and immigration
laws. Government licensing is a barrier to entry into certain industries. Those producers who are
unable to obtain the license but would have been able to produce in a purely free market suffer a
loss of wealth while those able to obtain the license gain in wealth because they can charge
higher prices due to the lower supply of the good or service resulting from a more restricted level
of competition. Consumers also suffer a loss as they must now pay a higher price for these goods
and services.
Another less obvious form of monopolistic privilege results from restrictive immigration
policies.31 In a free market economy, wage rates associated with the same work have a tendency
to equalize across all regions of world. However, this equalization is dependent upon businesses

31

Rothbard, 1107-1111.

moving from high-wage regions to low-wage regions and wage-earners in low-wage regions
moving to high-wage regions. Immigration laws restrict the movement of labor from low-wage
areas to high-wage areas, and thus acts as a restrictionist policy that protects the wage-earners in
high-wage areas that would otherwise have to compete with an influx of workers from low-wage
regions. Therefore, immigration restrictions lower the wealth of the would-be immigrants and
increases the wealth of those protected within the high-wage region.
In summary, it has been shown that all government interventions, whether autistic,
binary, and triangular, are redistributive. The redistributive effects are found by comparing what
is commonly seenthe benefits of each programwith what is unseenthe opportunity costs
of every government intervention. The exploration of each type of intervention, with specific
examples, demonstrates the efficacy of Bastiats definition and subsequent explication of
government as redistributive in nature. The assertion that all government policy involves the
confiscation and allocation wealth in ways that consumers in the purely free market would not
have approved through their market-interactions is, in effect, verified. Each person clamoring for
government services is necessarily clamoring to live at the expense of others.
The Purely Free Market: The Imaginary Construction of a Non-Coercive Society
The preceding section provided analytical evidence for the conclusion that every act of
government is redistributive because every government action involves the confiscation and
allocation of wealth in ways that consumers in the purely free market would not have approved
through their market-interactions. This definition, however, is entirely dependent upon what is
meant by the purely free market. In footnote 21, it is stated that the necessary and sufficient
condition of a purely free market society is absolute respect for each individuals body and

private property. If one is to deduce the unique economic effect of each act of
aggression/coercion on individuals in society, one must define the purely free market as a
theoretical concept of economics that assumes a state of absolute respect for each person and his
private property a state absent of all coercive intervention. 32
When used as a tool of economic analysis, the purely free market is one of many
imaginary constructions that are necessary for understanding economic phenomena. In Human
Action, Ludwig von Mises explained imaginary constructions and argued that the employment of
these tools is necessary for any study in economic theory:
The specific method of economics is the method of imaginary constructions.An
imaginary construction is a conceptual image of a sequence of events logically
evolved from the elements of action employed in its formation. It is a product of
deduction, ultimately derived from the fundamental category of action, the act of
preferring and setting aside. In designing such an imaginary construction the
economist is not concerned with the question of whether or not it depicts the
conditions of reality which he wants to analyze. Nor does he bother about the
question of whether or not such a system as his imaginary construction posits
could be conceived as really existent and in operation. Even imaginary
constructions which are inconceivable, self-contradictory, or unrealizable can
render useful, even indispensible services in the comprehension of reality,
provided the economist knows how to use them properly.The main formula for
designing imaginary constructions is to abstract from the operation of some
conditions present in actual action. Then we are in a position to grasp the
hypothetical consequences of the absence of these conditions and to conceive of
the effects of their existence. Thus, we conceive the category of action by
32

For we can gain a theoretically unexceptionable explanation of complex phenomena only by first
assuming the full activity of the elementary economic interconnections as shown by the equilibrium theory, and then
introducing, -consciously and successively, just those elements that are capable of relaxing these rigid
interrelationships. All the phenomena that become possible only as a result of this relaxation must then be
explainedas consequences of the particular elements, through whose inclusion among the elementary assumptions
they become explicable within the framework of general theory. In place of such a theoretical deduction, we often
find an assertion, unfounded on any system, of a far-reaching indeterminacy in the economy. Paradoxically stated as
it is, this thesis is bound to have a devastating effect on theory; for it involves the sacrifice of any exact theoretical
deduction, and the very possibility of a theoretical explanation of economic phenomena is rendered problematic
(original emphasis). F.A. Hayek, Monetary Theory and the Trade Cycle, In Prices and Production and Other
Works, 47-48. For a discussion the necessity of basing the study of real economic relationships by starting with
unrealistic static assumptions, see Henry Hazlitt, The Failure of the New Economics, (Auburn: The Ludwig von
Mises Institute, 2007), 71-75.

constructing the image of a state in which there is no actionThe method of

imaginary construction is indispensible for praxeology; it is the only method of
praxeological and economic inquiry.33
Mises constructed the imaginary construction of the evenly rotating economy in order to theorize
about human action.34 The evenly rotating economy assumes the absence of change and time,
that is, it assumes the complete absence of uncertainty given a final state of rest. The evenly
rotating economy also assumes indirect exchange and the use of money. However, as Mises
states, following the ultimate logical conclusions of the assumptions built into the evenly rotating
economy, there can be no action, entrepreneurship, or money, and thus no market to be inhabited
by the soulless unthinking automatons of the evenly rotating economy.35
As previously stated, Mises comes to an understanding of the function/category of action
by constructing the image of a state in which there is no action.36 And, Mises states, In
order to grasp the function of entrepreneurship and the meaning of profit and loss, we construct a
system from which they are absent.37 Thus, in accordance with Mises, the correct imaginary
construction that will lead us to an understanding of the economic significance of coercion will
be a construction that assumes the absolute absence of coercionwhat is called in this analysis
the purely free market. The fact that such an imaginary conception is unrealizable and perhaps
inherently contradictory does not affect the question of whether or not it is a proper tool for
33

Mises, 237-38. For relation of the employment of imaginary constructions, also known as thought
experiments or models, to the certeris paribus assumption implicit in all economic theorizing and to the laboratoryexperiments of the natural sciences, see Murray N. Rothbard, The Present State of Austrian Economics, In
Economic Controversies, 161-223 (Auburn: The Ludwig von Mises Institute, 2011), 181-182.
34

Mises, 247-251.

35

Ibid. 249-50.

36

Ibid. 238.

37

Ibid. 249.

economic analysis. Thus, I posit that a broader base for economic theory can be found by
replacing another one of Misess imaginary constructions, the pure or unhampered market
economy, with the absolutely non-coercive concept of the purely free market. The purely free
market used in this papers analysis of state intervention is identical in every way to Misess
pure or unhampered market economy except that there is an absolute absence of coercion. 38
The way to analyze the economic significance of the existence of the coercive State is to start
from a construction which is free from all coercive entities, including the State. From a state of
non-coercion in the purely free market imaginary construction, one can individually analyze the
effect of introducing different types of coercion into the market. In similarity to Professor
Rothbard in Power and Market, the starting piece of information is that a purely free market is
totally incompatible with the existence of the State, or any coercion whatsoever.39
From the comparison of a peaceful and Stateless market-based society with a society that
has introduced certain forms of coercive interventions individually, the preceding section of this
study has concluded that the existence of the State necessarily implies the redistribution of

38

For discussion of the imaginary construction of the pure or unhampered market economy, see Mises,
238-240. Note that Misess pure market economy contains the existence of coercion: It [the imaginary construction
of the pure market economy] assumes that the government, the social apparatus of compulsion and coercion, is
intent upon preserving the operation of the market system, abstains from hindering its functioning, and protects it
against encroachments on the part of other people. Mises, 239.
39

Thus, a truly free market is totally incompatible with the existence of a State, an institution that
presumes to defend person and property by itself subsisting on the unilateral coercion against private property
known as taxation. Rothbard, 1056.
However, my analysis is on slightly firmer ground because it does not presuppose, as Rothbards analysis
did, that an orderly Stateless market-based society actually could exist; rather my theory asserts that a peaceful and
Stateless market-based society is the correct imaginary construction to use in analyzing the economic effects of the
existence of the State and the nonexistence of peace. The question of whether or not a Stateless market-based society
could exist is independent of the question of whether or not the imaginary construction of a peaceful and Stateless
market-based society is the correct basis for the theory of the economic effects of the existence of the State, State
policies, and the nonexistence of peace. However, this fine point of the basis of the theory of intervention does not
affect the veracity of Rothbards theory of intervention.

wealth, given that all States, by definition, are coercive. As Bastiat states, Government is that
great fiction, through which everybody endeavors to live at the expense of everybody else.40
This is because, with every government policy, one group of society must lose for another group
to gain. Not all people in society can live at the net expense of others, only the class of tax
consumers can live at the expense of a corresponding group of taxpayers. When state action is
involved, there must be winners, but there must also be losers. In order to validate this
conclusion, we must respond to a common argument that there are certain State actions that do,
in fact, result in everybodys gain and the loss of no one.
Collective Goods and the Free Rider Problem
In the imaginary construction of the purely free market, there is no institution of
compulsion or coercion; therefore, most economists would have it, people are worse off, to a
certain degree, because the public goods problem, also known as the free rider problem, is able
to permeate the society unchecked. One way for the free rider problem to emerge itself is in the
case of supplying collective, or public, goods or services that are said to be nonexcludible and
nonrivalrous, that is, goods or services that benefit everyone within a community once provided
and whose consumption by one member of the community does not diminish the amount able to
be consumed by others. Another way to formulate the definition of collective goods is as goods
that are indivisible and therefore cannot be allocated by having individual consumers pay for
their own portions of the product.41 Assuming rational and self-interested individuals, each
individual in the community will try to consume collective goods at least cost to himself. Thus,
40

41

Ibid. 99.

Murray N. Rothbard, The Myth of Neutral Taxation, In Economic Controversies, 449-501 (Auburn:
The Ludwig von Mises Institute, 2011), 464.

each member of the community will fail to contribute towards provision of the public good
because each maximizes utility by consuming the collective good at no cost to selfeach
member maximizes his utility by free-riding on the contributions of others.42 However, since no
individuals will contribute to the provision of the collective good, each will be worse off because
the good will not be provided. Thus, the public goods problem is epitomized by conflicting
tensions. If all members cooperate, they are all better off; but, if all others cooperate, each
individual member has an incentive to increase his utility further by free riding.43
Collective goods, in a non-coercive atmosphere, will not be able to be supplied, or at best
will be supplied at sub-optimal levels, according to the theory of collective goods. Thus, each
individual in the community would be better off if the social apparatus of coercion, the State,
could aim in providing or at least enforcing contribution towards the supply of collective goods.
To counter this economic assertion, three questions must be asked: (1) How is the economist to
rationally judge, a priori, the optimal level of the supply of collective goods if he lacks
knowledge of each and every individuals preferences (which is necessary to construct a demand
curve)? (2)What is the basis for assuming that these collective goods are goods for all
individuals? And (3) Is the basis for calling these goods collective rationally sound?

42

This conclusion is derived from the assumption of both rationality and self-interest. However, not all
individuals in the real world are rational and self-interested. Thus, there is extensive literature in experimental
economics of public goods games where total contributions by members exceeds zero contribution. For one
explanation of this behavior, see Robyn M. Dawes and Richard H. Thaler, Anomalies: Cooperation, Journal of
Economic Perspectives, 1988: 187-197.
43

Holden Diethorn, James Orange, and Anthony Weisenberger, The Effect of a Provision Point and
Partial Refund Policy on a VCM (undergraduates thesis, Saint Vincent College, 2012), 1.

I. Optimal Supply
If one is to speak of the sub-optimal provision of a good, one must then know the optimal
supply of the good. But this cannot be known a priori if one does not know the tastes and
preferences of all individuals in society. Even if one somehow had access to all historical data
regarding each and every individuals preferences, he still could not judge the optimal supply of
a good or service because individual tastes and preferences are constantly in flux. One cannot
precisely measure the marginal benefits and marginal costs of a good or service without such
information since benefits and cost are primarily psychical phenomena.44 In addition, one can
only deduce the preferences of individuals by their demonstrated preferences, or the ways they
act, in a free market society.
If we start from a purely free market society lacking any coercion, there are exchanges of
goods and services. The economy itself is not at a final state of rest, which is the study of the
evenly rotating economy; rather, the purely free market is the theoretical equivalent of an
actually functioning economy in the absence of any coercion. Now, lets relax the assumption of
lack of coercion and assume that a State is introduced that provides national security, a justice
system, and laws regulating the use of violent force. Whatever can be said of the morality of
such a system, which is of no interest to the economist qua economist, the system can be said to
be conceivably possible. Given that these State functions all aim at the protection of life, liberty,
and property, the system could exist in practical reality as a classical liberal society; this is
Misess imaginary construction of the pure or unhampered market economy.

44

Mises, Human Action, 97-98, 205-06.

Now, let us imagine that a group of contractors are pursuing a plan to build a dam that
would increase the property value of all land protected by the dam. In order to build the dam, the
contractors are looking to pull resources from precisely those individuals who would see a rise in
their property values due to the protection that a dam would afford. Let us, for the sake of
argumentation, admit that the dam is a collective good and that the money cost per each
individual in the area is lower than the expected increase in the money value of each individuals
property if the dam is constructed. Let us further allow that expectation to be reality, that the
construction of the dam will, with absolute certainty, raise the market of value of each
individuals property more than it will cost each individual to pay for the dam. Given that the
dam is a collective good, the contractors will fail to obtain the necessary revenues to build the
optimal-quality dam due to the free rider problem. Thus, it is commonly asserted, individuals
will inevitably benefit if the government steps in and coerces all individuals in the region to pay
for the optimal dam, because given that the money benefit of the dam exceeds the money cost of
the dam, individuals actually value the dam and simply fail to contribute due to the incentive to
free ride.
In The Myth of Neutral Taxation, Murray Rothbard offers valid criticism to this theory
by paying attention to that which is unseenthe opportunity costs of the coercive provision of
collective goods:
Even if free riders benefit from the collective service X, in short, taxing them to
pay for producing more will deprive them of unspecified amounts of private
goods Y, Z, and so on. We know from their actions that these private consumers
wish to continue to purchase private goods Y, Z, and so on, in various amounts.
But where is their analogous demonstrated preference for the various collective
goods? We know that a tax will deprive the free riders of various amounts of their
cherished private goods, but we have no idea how much benefit they will acquire
from the increased provision of the collective good; and so we have no warrant

whatever for believing that the benefits will be greater than the imposed costs.
The presumption should be quite the reverse.45
The common economist is too quick to presume that, since the increase in the market value of
the property protected by the dam exceeds the money cost of the dam, individuals actually would
purchase the dam if it were not for the free rider problem. But is it not true that more money is
preferred to less? Not entirely. More money now is always better than less money now.
However, more money later is not always worth the sacrifice of less money now. Whether or not
more money later is better than less money now depends upon the difference between the two
magnitudes of money, the length of the passage of time, and an individuals rate of time
preference.
In terms of the construction of the dam, each individual may value the goods and services
he is able to buy now more than the goods he will be able to buy when he pays for the dam. The
construction of a dam results in the service of personal protection and the service of increasing
ones property value. Thus, an individuals valuation of the worth of the dam will be based on
the value he associates with the preservation of his and his familys life and property, his
valuation as to the risk of flooding with and without the dam, his valuation of how distant such a
flood may be from the present time, the time until he would plan to translate his increase in
property value into cash, and his valuation as to the goods and services he must give up in order
to pay for the construction of the dam. Therefore, we conclude that the public good theorists who
advocate for government to coercively aid in supplying collective goods because it benefits
everyone must find a new theory if such pronouncements are to be considered the suggestion of a
value-free economist.

45

Rothbard, 476.

II. Collective goods and the assumption of an associated and universal positive utility
An implicit assumption of the public good theorist is that the collective good carries with
it a universal positive utility. In response, it must first be noted that there is no such thing as
intrinsic value; value is always subjective, even when based upon the objective characteristics of
a good or service. Subjects valuate, objects do not contain value. Secondly, as applied to the case
of the dam, may there not exist at least one environmentalist in the community who negatively
values the construction of the dam because the construction will threaten the pristine atmosphere
of the flowing river along with the natural organisms living in the waters and along the river
banks? How can the economist label him simply as a free rider, when in actuality he is morally
opposed to dam-production? Coercing such an individual and the community around him will
decrease, rather than increase his utility if the result is the provision of the dam. We now see that
the coercive supply of collective goods constitutes redistribution by decreasing the utility of
those morally opposed to or uninterested in the purchase of the collective goods or services and
increasing the utility of those who desire more and higher-quality collective goods.
Given this analysis, we can also see how the coercive provision of national defense,
police forces, and a justice system redistribute wealth insofar as at least one principled pacifist or
anarchist is subject to such taxation or service. Even those services most basic to the existence
of governmental institutions are seen to be redistributive when compared to the purely free
market.

III. Do collective goods exist?

In the previous section, we have seen how most collective goods cannot be said to carry a
universally positive utility for all individuals. But are any goods truly collective, that is, are any
goods actually indivisible?
One possible case of a collective good is a lighthouse. Assuming that the light does not
reach anyone but those arriving at the ports, it appears safe even to assume that lighthouses carry
universally positive utility for all those in the community that use them. However, this does not
imply that the lighthouse must be provided coercively. It is possible to exclude ships from using
the lighthouse due to present radar technology which would only turn the lighthouse on if a
registered ship were in the vicinity. However, prior to this technology, the private provision and
servicing of lighthouses was not only still possible, but was a historical reality. Nobel laureate
economist Robert Coase concludes his definitive study, The Lighthouse in Economics, by
stating that private operation has existed and can exist in the lighthouse industry:
The early history shows that, contrary to the belief of many economists, a
lighthouse service can be provided by private enterpriseThe lighthouses were
built, operated, financed and owned by private individuals, who could sell the
lighthouse or dispose of it by bequest. The role of the government was limited to
the establishment and enforcement of property rights in lighthouses. The charges
were collected at the ports by agents for the lighthouses. The problem of
enforcement was no different for them than for other suppliers of goods and
services to the shipowner.46
Other possible collective goods include police protection, judicial services, and national
defense. However, economist Kenneth D. Goldin has shown that the pure theory of public
goods is an elegant theory without significant application.There are no goods or services

46

R.H. Coase, The Lighthouse in Economics, Journal of Law and Economic 17 (October 1974): 375.

which are inherently public goods or externalities; there is always a choice between equal and
selective access; and there is generally an additional cost to serve additional persons.47 He
has shown that police protection, judicial services, and national defense can all be provided in
varying increments that have incremental costs associated. Thus, collective goods do not exist
because the costs and benefits associated are divisible, albeit in varying degrees.
In discussing police protection as a divisible service, Dr. Goldin focuses on the effect of
population growth on the quantity and quality of service. He first notes that as communities grow
in population, more people desire crime defense. If the community wishes for each individual to
maintain the same consumption of protective services as before, then more policemen must be
hired, which is an increased cost. If more policemen are not hired, then service to all members of
the community must be diminished. This is the only way to protect an increased population with
a fixed amount of police services. This imposes costs on residents in the form decreased services,
and if members of the community do not wish to suffer an increased risk of crime, they must
purchase other forms of crime defense such as locks, fences, guard dogs, guards, and also alarm
companies which respond if the burglar alarm is tripped, as well as private police service.48
Thus, we can see crime defense services are rivalrous and excludable.
In analyzing court service, Professor Goldin considers the effect of an increasing amount
of court cases on those seeking judicial services: To service more persons generally requires
more judges and courtrooms. If more facilities are not acquired, additional users will impose
costs on others, in the form of longer days for trial and/or less judicial time spent on each case.49
47

Kenneth D. Goldin, Equal Access vs. Selective Access: A Critique of Public Goods Theory, Public
Choice 29 (Spring, 1977): 60.
48

Goldin, 60.

49

Ibid.65.

Therefore, judicial services are rivalrous. Professor Goldin then notes the existence of private
arbitrators who are only willing to serve those who are willing to pay for their judicial services;
this shows that judicial services are excludable, even if these services are considered as
fundamental services in society.50
Lastly, Professor Goldin takes on the difficult subject of national defense. In similar
fashion, Goldin begins by analyzing the effect of population growth on the costs of national
defense:
First, the new population must live somewhere. If they cause an increase in U.S.
land area, then either more defense services must be provided, or there will be a
decrease in the level of protection of earlier residents and either way the marginal
costs of protecting additional persons is positiveSecond, even if the new
population resides within the existing boundaries, they will generally increase the
amount of physical and human wealth which might be coveted by the enemy.
That is, foreign attack is (at least partially) an economically motivated action, and
is more likely to occur if there is more capital worth coveting.51
Goldin then shows in what ways national defense is excludible by highlighting the role of the
military in preventing theft and kidnapping by foreigners. The military can refuse to protect
against foreign theft and kidnapping for those individuals that do not pay for service, thus
making a feature of national defense excludible. Of course, there are certain functions of national
defense, such as the destruction of an oncoming nuclear missile, which will result in defense for
those that have not paid for these services, assuming people are permitted to refrain from
purchasing these protective services. However, there may exist persons within the country that
would welcome, for whatever reason, the nuclear obliteration of a targeted region of their home
country, so we cannot make an absolutist pronouncement of universal positive utility of

50

Ibid. 66.

51

Goldin, 60-61.

protection against an oncoming nuclear missile. Government protection from a nuclear missile
can then be seen as redistributive insofar as it is financed by the tax revenue of at least one
person who sympathizes with the enemy.
The Purely Free Market, Political Philosophy, and Practicality
As used in this study, the purely free market is an imaginary construction of an
impossible society which is absolutely non-coercive. The role of the idea of the purely free
market is to aid in elucidating the effects of the introduction of different types of coercion into a
peaceful market atmosphere. It is keen to remember that the analysis of government intervention
is actually the analysis of all coercive intervention, whether performed by government officials
or a private individual. The role of the purely free market economy is not to display a political
ideal; there has been no claim that the purely free market economy would be the height of
justice, morality, virtue, or human blossoming. In fact, there is nothing in this analysis that
precludes one from stating that it is the absolute antithesis of the perfectly just society. The moral
character of a society mimicking or approximating the purely free market cannot be deduced
from economic analysis. The moral character of the purely free market is irrelevant to its use as a
tool to understand the economic effects of government intervention. It is not meant as a tool to
analyze the moral effects of government intervention. However, one would likely need to know
the economic effects of government intervention before one could pronounce a judgment as to
the morality of government actions. Insofar as that is the case, the imaginary construction of the
purely free market is indispensible for any political theory that seeks to proclaim a value
judgment regarding government intervention. One cannot adequately address political

philosophy while remaining in a general state of economic ignorance, which implies an

ignorance of the necessary effects of all human action.52
One important finding for political philosophy is found in the conclusion that every
government policy, and thus the very existence of the State, implies redistribution. Therefore,
anyone other than a free market anarchist must refrain from dismissing a policy simply on the
grounds that it is redistributive. To dismiss a policy on the grounds that it is redistributive is to
dismiss government as a whole. Thus, all supporters of government existence are supporters of
the redistribution of wealth, what they disagree with are how much and for what reasons
redistribution is legitimate. These value judgments remain arbitrary and mere opinion unless
justified by a coherent political philosophy. It is the role of political philosophy to come to
rational value judgments regarding the justice of the free market and of different types of
government intervention, whereas it is the role of political economy to discover the causal
relationships between different market interactions and different government interventions.53
On a related note, there are some, including Murray Rothbard, that do defend a version of
society similar to the purely free market society as an attainable and most just society. It is not
within the scope of this work to give a full analysis and judgment of this philosophy in terms of
justice, but it is helpful to put it in the context of this present work and to remark on its
practicality. Obviously, the purely free market society is impossible since the existence of violent
individuals at all times and all places has been the rule of history. Rothbards ideal, rather than
52

Economics is the study of human action in the market. Economics is a branch of praxeology, which is the
universally valid science of all human action, market and non-market.
53

Note that political philosophy is similar to political economy in having found useful the employment of
imaginary constructions to deduce political principles, such as Platos Republic, Hobbess state of nature, and
Rawlss original position. See Plato, The Republic of Plato, Second Edition translated by Allan Bloom, (US: Basic
Books, 1991); Thomas Hobbes, Leviathan, (New York: Cambridge University Press, 1996); and John Rawls, A
Theory of Justice, Revised Edition, (US: Harvard University Press, 1971).

being the purely free market, is that imaginary construction that may exist between the purely
free market and Misess pure or unhampered market economy. His ideal allows for the
possibility of coercion in society, but posits that market-entities that are not coercively-funded
could carry out those functions commonly ascribed to the State.54 The necessary and sufficient
condition of a Rothbardian society is a degree of respect for each individuals body and private
property that is above a certain threshold. His society would have to be able to quell those
powerful individuals who desire to conquer or illegally expropriate value from the weaker
citizenry. Insofar as a requisite amount of respect for person and property is not held within
society, Rothbards system is unworkable and a State would likely emerge out of it.55 As long as
individuals in society do not view legal plunder as illegitimate, Rothbards system is not likely
to ever succeed for any extended period, even if it were morally desirable. The adoption of his
ideal, no matter if he made valid moral claims, would result in disastrous effects if the citizenry
is not prepared for the responsibilities of living in anarchocapitalist society. As an ideal for a
practical, and not just theoretical, society, it is in even shakier ground than a limited
constitutional government founded on the principles of life, liberty, and private property. This is
because a citizenry that lacks respect for life, liberty, and property is not fit for the requirements
of a free society with limited government, or no government at all.
Conclusion
Bastiats definition of government as that great fiction, through which everybody
endeavors to live at the expense of everybody else is essentially correct. It both captures the
54

See Murray N. Rothbard, For a New Liberty: The Libertarian Manifesto, Second Edition, (Auburn: The
Ludwig von Mises Institute, 2006), 267-299.
55

Whether it is possible to ever engender such a high level of respect for person and property, and if
possible, how it would be done, is the crucial argument regarding the practicality of Rothbards ideal. Many who
may be sympathetic to his moral arguments may object to the system on practical grounds and regard it as quasiutopian.

publics unrealistic appraisal of the nature of government, and, through its implicit criticism of
the common view, sheds light on the actual redistributive nature of government. Bastiats insight
into the nature of government, as well as his statement that the good economist needs to
avoid judging of things by what is seen only, but to judge of them by that which is not seen,
leads to an analysis of government intervention built upon examining the opportunity costs and
redistributive nature of all government interventions. A comprehensive analysis of each type of
government intervention, along with specific examples, shows the efficacy of Bastiats definition
to all functions of government, legitimate or illegitimate. It is demonstrated that every
government action results in a class of individuals that benefit only at the expense of another
class of individuals who suffer a loss. The underpinnings of the theory of the analysis of
intervention developed in this work were then explicated and defended with reference to the
necessary method of economic analysisthe use of imaginary constructions, also popularly
referred to as economic models. Next, the most common counterargument to the present
analysis, the argument that the coercive power of the State can be used to benefit all individuals
at the expense of no other individual in the case of the provision of public goods, was found to be
dubious and the entire classification of some goods as collective, or public goods, was brought
under scrutiny. Lastly, the economic model of analysis constructed in this work was evaluated in
terms of its scope of relevance for political philosophy. An example of a philosophic view of a
stable society closely related to the purely free market was subsequently evaluated in order to
show to what extent the purely free market is or is not practically attainable.
I end this paper with my own definition of government: Government is, simply,
redistribution of wealth.

Bibliography
Bastiat, Frdric. "Government." In The Bastiat Collection, Second Edition, by Frdric Bastiat,
95-107. Auburn: The Ludwig von Mises Institute, 2007.
Bastiat, Frdric. "That Which Is Seen and That Which Is Not Seen." In The Bastiat Collection,
by Frdric Bastiat, 1-48. Auburn: The Ludwig von Mises Institute, 2007.
. The Law. London : The Institute of Economics Affairs, 1998.
Calhoun, John C. A Disquisition on Government. New York: Liberal Arts Press, 1953.
Coase, Robert. "The Lighthouse in Economics." Journal of Law and Economics, October 1974:
357-376.
Dawes, Robyn M. and Richard H. Thaler. Anomalies: Cooperation. Journal of Economic Perspectives,
1988: 187-197.

Diethorn, Holden, James Orange, and Anthony Weisenburger. "The Effect of a Provision Point
and Partial Refund Policy on a VCM." 2012.
Goldin, Kenneth D. "Equal Access vs. Selective Access: A Critique of Public Goods Theory."
Public Choice, Spring 1977: 53-71.
Hayek, F.A. "Monetary Theory and The Trade Cycle." In Prices and Production and Other
Works, by F.A. Hayek, 1-130. Auburn: The Ludwig von Mises Institute, 2008.
Hayek, F.A. "Prices and Production." In Prices and Production and Other Works, by F.A.
Hayek, 189-329. Auburn: The Ludwig von Mises Institute, 2008.
Hazlitt, Henry. "Economics in One Lesson." 139-140. New York: Harper & Brothers Publishers,
1946.
. The Failure of the "New Economics". Auburn: The Ludwig von Mises Institute, 2007.
Hobbes, Thomas. The Leviathan. New York: Cambridge University Press, 1996.
Mises, Ludwig von. Human Action, Scholar's Edition. Auburn: The Ludwig von Mises Institute,
2008.
Mises, Ludwig von. "The Task and Scope of the Science of Human Action." In Epistemological
Problems of Economics, by Ludwig von Mises, 1-69. Auburn: The Ludwig von Mises Institute,
2003.
. The Theory of Money and Credit. Auburn: The Ludwig von Mises Institute, 2009.

Nozick, Robert. Anarchy, State, and Utopia. US: Basic Books, Inc., 1974.
Plato. The Republic. Translated by Allan Bloom. US: Basic Books, Inc., 1991.
Rawls, John. A Theory of Justice, Revised Edition. US: Harvard University Press, 1971.
Rothbard, Murray N. "In Defense of "Extreme Apriorism:." Southern Economic Journal, January
1957: 314-320.
. Man, Economy, and State with Power and Market, Scholar's Edition. Auburn: The Ludwig
von Mises Institute, 2009.
Rothbard, Murray N. "The Myth of Neutral Taxation." In Economics Controversies, by Murray
N. Rothbard, 449-501. Auburn: The Ludwig von Mises Institute, 2011.
Rothbard, Murray N. "The Present State of Austrian Economics." In Economic Controversies, by
Murray N. Rothbard, 161-223. Auburn: The Ludwig von Mises Institute, 2011.