On the Private Provision of Public Goods

by Don Boudreaux on May 25, 2010

in Civil Society, Complexity & Emergence, History, Law, Myths and Fallacies, The Profit Motive

In my latest column in The Freeman, I discuss some real-world examples of the private provision of public goods.  Here are my opening few paragraphs:

Nobel laureate economist Elinor Ostrom’s important work shows that people are very good at using voluntary action to solve problems that economics textbooks insist require the forceful hand of government. Producing “public goods” (such as irrigation systems for a community of farmers) often promises large enough gains to stir the creative juices of people—who, given enough freedom of action and security of rights, then figure out how to cooperate to provide them. This cooperation often takes different forms from what we witness in markets for typical private goods (such as shoes).

Along similar lines other scholars over the years have discovered countless historical examples of the successful private provision of public goods. Sometimes it is achieved by firms seeking monetary profit, while other times it is achieved by people cooperating for gains that are real but not monetized or exchanged in conventional markets.

The discovery of any such instance always surprises the typical economist, whose thinking is stymied by too many wrongheaded models of economic interaction.

Perhaps the most surprising of these discoveries is the issue of private currencies (or “free banking”). F. A. Hayek, George Selgin, and my George Mason University colleague Larry White led the way in showing not only that sound money can be supplied privately but that it has been supplied privately—most notably in Scotland from 1716 until 1844.

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