What Should Be Public, and What Should Be Private?
Only when everything is private other than the commanding heights of governance will we fully enjoy the peace, liberty, justice, prosperity, and harmony that can be our destiny.
August 9, 2009
Fred Foldvary, Ph.D.
Economist

The scope of government has escalated during the past 100 years, so that government now dominates the economy. There was a rollback in the old Soviet Union and its satellites, but otherwise the ever greater dominance of the state continues, leaping with each crisis such as the Great Recession of 2007-2009.

During the 1920s in his book Socialism, the economist Ludwig von Mises provided a theory of why big government fails. Free markets are needed to discover the optimal allocation of scarce resources for the satisfaction of human desires. Market prices provide the efficient way to ration scarcity. The economist Friedrich Hayek added the insight that the knowledge of what to produce is scattered and unknowable to central planners.

The proposition that markets succeed where governments fail applies not just to totalitarian regimes but to any government intervention. Governments can enhance the market by protecting property rights, but when they go beyond that to interfere with honest and peaceful human action, they make the economy worse. There is also the moral argument that self-owning human beings have the natural right to do whatever does not coercively harm others.

There are some things that there should only be one of. Most folks agree that we should only have one military force, and it should be under the control of the people. The commanding heights of government would also not be private -- the supreme court, the legislature, and the chief. Everything else can be voluntary and contractual, hence in the private sector.

Taxation socializes whatever is taxed. A tax on wages socializes labor to that degree. So private labor and wages should be tax-free. Likewise, private capital needs to be tax-free. For an efficient market, the possession of land should also be private, except for military bases and governmental buildings. But the privatization of land rent is not so evident.

A fundamental moral question is whether there is an inherent equality among human beings, an equality of moral worth, which implies equality before the law, and equal rights to self-ownership. If this is accepted, as was argued by the philosopher John Locke, then this implies that each person has a right to an equal share of benefits from nature, which economically is manifested in an equal share of the natural land rent.

This equal share belongs to people, not governments, and thus a person’s equal share of rent is properly private, belonging to that individual, payable as a resident’s dividend. When government provides public goods such as streets and security, that generates a rental which is governmental and which should be collected from those with titles to the land sites. But these works and services can be adequately provided by private enterprise, including their integration into contractual communities such as land trusts and civic associations.

Many services, such as money, education, and medical care, which are now largely governmental, can be more effectively provided by government, and there is a large literature on this. In many cases, government steps in because folks are too poor to provide on their own. But government has created that poverty in the first place by taxing wages and subsidizing landowners. When government cuts down wages and pumps up rent and land value, then of course many folks will not be able to afford basic food and shelter. But, as Henry George stated, “there is in nature no reason for poverty.” Poverty is caused by governmental intervention, and then it intervenes again to treat the effects. The remedy is to stop the intervention.

If we want to know why the economy has been governmentalized, look at who is benefitting the most. We have recently witnessed in the USA the colossal subsidies to the financial industry to bail them out of their losses, but not so evident is the foundation on which the financial edifice is built, the ground upon which it is all constructed, the land. Governments world-wide serve the landed interests. Home-ownership is promoted so that the big rent seekers will have as political allies all the petty rent seekers. It’s not that the rent has become privatized, but that the rent is forcibly redistributed from the proper owners to the landed aristocracy.

If you favor the governmentalization of the economy, then you in effect favor the privileges of the landed elites. Welfare to the poor and the middle class is essentially compensation for denying them their natural right to produce and fully keep their earnings. Only when everything is private other than the commanding heights of governance will we fully enjoy the peace, liberty, justice, prosperity, and harmony with nature that can be our destiny once we understand it.

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Fred Foldvary, Ph.D.
Economist

FRED E. FOLDVARY, Ph.D., is an economist and has been writing weekly editorials for Progress.org since 1997. Foldvary's commentaries are well respected for their currency, sound logic, wit, and consistent devotion to human freedom. He received his B.A. in economics from the University of California at Berkeley, and his M.A. and Ph.D. in economics from George Mason University. He has taught economics at Virginia Tech, John F. Kennedy University, Santa Clara University, and currently teaches at San Jose State University.

Foldvary is the author of The Soul of LibertyPublic Goods and Private Communities, and Dictionary of Free Market Economics. He edited and contributed to Beyond Neoclassical Economics and, with Dan Klein, The Half-Life of Policy Rationales. Foldvary's areas of research include public finance, governance, ethical philosophy, and land economics.

Foldvary is notably known for going on record in the American Journal of Economics and Sociology in 1997 to predict the exact timing of the 2008 economic depression—eleven years before the event occurred. He was able to do so due to his extensive knowledge of the real-estate cycle.