Quotation of the Day…

by Don Boudreaux on January 14, 2020

in Complexity & Emergence, Crony Capitalism, Seen and Unseen, Subsidies, The Profit Motive, Trade

… is from page 170 of my colleague Richard Wagner’s superb 2017 intellectual biography of Jim Buchanan, James M. Buchanan and Liberal Political Economy (typo corrected):

This [classical] liberal system means there are no sheltered positions in society where a prosperous enterprise can be protected from competition that would erode that wealth. The creator of a successful business cannot call upon political authorities to prevent competition from other enterprises. For a successful enterprise to continue to be successful, it will be necessary for the enterprise continually to attract support in the face of free and open competition. Similarly, within a liberal society an enterprise will not be able to secure subsidies to get started, or to keep going when otherwise it would fail because it couldn’t operate as a going concern without political support.

Within a liberal society, there would be no positions of special privilege that either were established using political power or were maintained in the face of competition using political power.

DBx: The only practical means for us creatures this side of omniscience to know if particular productive operations are, in fact, productive – that is, to know if particular uses of resources and time produce value for society rather than destroy value – is to observe which particular productive operations survive when people as consumers spend their own money and time unobstructed, and when people as income-seekers spend their own money and time unobstructed.

The market order described above by Wagner is an institution that assures, as nearly as we can practically expect any institution to assure, that individuals promote their own welfare (however each individual might reckon his or her welfare) only by helping other people – including helping countless strangers – promote their welfare. You want to earn profit? Excellent! Produce something using a mix of resources that costs less than is the value that I attach – as I reveal by my willingness to pay my own money – for the good or service that you produce and offer for sale. If you do so, net value will be created not only for you, but also for me as well as for those who voluntarily sell to you their labor and the other inputs that you use to produce your goods or services.

But this connection between each of us promoting our own welfare only by helping other people to promote their welfare is severed by special privileges granted by the state. Owners of business enterprises that survive only because of tariffs profit at the expense of their fellow human beings. Ditto for owners of business enterprises the revenues of which are inflated by subsidies. The same, of course, holds true for workers in such firms. A worker whose job exists only because of tariffs or other special privileges granted by the state might appear to economically uninformed observers to be productive, but in reality that worker is a parasite: he or she survives in that specific job only because state coercion compels fellow human beings – usually fellow citizens – to sacrifice for that worker’s benefit. This worker’s gain is less than the costs to others of supporting him or her.

The bottom line is this: those who seek tariffs or subsidies seek to survive as parasites. Those who acquire tariffs or subsides survive as parasites. And those who apologize for tariffs or subsidies apologize for parasites.

It isn’t always, perhaps not even usually, the case that these parasites and those who apologize for them are aware of their parasitical nature and existence. But economics reveals this nature and existence to be reality. Just as tapeworms’ obliviousness to their destructive parasitical actions does nothing to make tapeworms less parasitical, protected or subsidized producers’ obliviousness to their destructive parasitical actions does nothing to make these actions less parasitical. Indeed, ignorance of, and resistance to, the economics that reveals such parasitism only encourages it.

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