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Imagine the Outcry if Walmart Demanded Payment Years In Advance of Its Delivery of Goods to Consumers

Here’s a letter to the Wall Street Journal:

AFL-CIO official Ed Wytkind pleads for an increase in government funding of Amtrak so that it “serves the country, not just the East Coast” (Letters, April 24).

Never mind the dubiousness of forcing 21st-century taxpayers to fund the expansion of a 19th-century industry.  Mr. Wytkind’s letter unwittingly reveals a key difference between the private sector and the government.  Government-operated firms require advanced payments from their customers (and non-customers!), in the form of tax dollars, as a prerequisite to supplying the outputs that justify their operation.  The “customers” of a government-operated firm must trust that their payments will eventually result in their receipt of sufficiently worthwhile goods or services in return.  If government firms deliver inadequate outputs, too bad for the customers because much (and sometimes all) of the payments have already been advanced to the government firms.  In contrast, private firms get paid only upon delivery to their customers of goods and services.  Only if customers value actually received goods and services highly enough to voluntarily pay for them do private firms pocket any payments from customers.

In short, while government firms demand up-front, involuntary payments as a prerequisite to their gearing up to produce and deliver future outputs to customers, private firms gear up for production first and then ask for voluntary payments only upon actual delivery of outputs to customers.

Donald J. Boudreaux
Professor of Economics
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA  22030