James Leroy Wilson's blog

Thursday, January 06, 2011

Producers, Consumers, and The State

Two weeks ago, Steven Horwitz quoted J.B. Say:
[T]he encouragement of mere consumption is no benefit to commerce; for the difficulty lies in supplying the means, not in stimulating the desire of consumption; and we have seen that production alone furnishes those means. Thus it is the aim of good government to stimulate production, of bad government to encourage consumption.
Horwitz clarifies this by saying:
Of course “stimulating production” need mean nothing more than leaving producers free to seek out profits as they see fit within the standard classical-liberal framework of law. It does not mean government should artificially benefit producers any more than it should encourage consumption.
Horwitz is probably correct as to Say's meaning. But why should the producer view the government that way?

Assuming by "government" Say means "The State" (i.e., a coercive monopoly) as opposed to a voluntary government, his statement:
Thus it is the aim of good government to stimulate production, of bad government to encourage consumption.
might as well be read as:
The most tolerable State is one that stimulates production; the least tolerable State encourages consumption.
The State does not produce directly; it only consumes what the producers produce and acts against their interests. The State:
  • Takes resources producers may have otherwise used
  • Taxes the means of production
  • Taxes producer profits
  • Taxes consumers in various ways, leaving them with less purchasing power, which reduces corporate profits
Why, then, would producers even tolerate The State? There could be many historical reasons, but through most of history, conquest was a common means of devouring wealth and resources, and it was much wiser to let the King tax and protect you than to have no King and see the King from a nearby country invade, kill you, and enslave your family.

But as the State "evolved" into quasi-democratic forms, there was no self-interest on the part of producers to adhere to classical liberalism. As their wealth was confiscated by the State, it was only natural to use the political process to get something back - to "stimulate production" artificially.

For example: producers could ask themselves, "Why should we build and maintain roads to facilitate commerce and enlarge our markets? This would be costly if we did it ourselves, but if it was funded by just a small hike in taxes on everyone, the pain would be minimal and the benefits to us would be enormous!" Hence road-building, which they would have to do themselves in the absence of The State, is something that is "naturally" part of The State's role, and is seen as a "public good" rather than as a subsidy to producers.

Producers are naturally inclined to lobby for trade protections for themselves when that is most beneficial to them, and to lobby to use threats and military force to "open" the markets of other countries, when that is beneficial.

They will call for tax cuts for themselves, and for subsidies for their industries.

All of this "stimulates production," while the costs, which are relatively small for each form of favoritism, are spread throughout the entire tax base.

Call them "special interests," or call them prudent. In the eyes of the producers, they are doing nothing wrong given the reality of The State.

Consumers - "the people" - behave in exactly the same way when they call on The State to provide income security, health care, education grants, labor laws, "consumer protection" laws, and even restrictions on "offensive" behavior. They are using The State to make their own lives as satisfactory as possible.

Call it parasitical or call it democracy. In the people's eyes, they are doing nothing wrong given the reality of The State.

Because of The State, civil society is dog-eat-dog. It's "every man for himself" to get as much out of The State as he can - whether in the role as producer or consumer.

Maybe this is human nature. Maybe it is "corrupt." But if it is corrupt, it is the result of the existence of State power. Lord Acton is credited for saying "Power corrupts, and absolute power corrupts absolutely," but the corruption doesn't reside only in the officeholders who formally wield State power. In a representative democracy where most people can vote and be eligible for office in an unlimited State, the corruption pervades us all, because we focus less on what producers and consumers can give each other in free exchange, and focus more on how we can use The State for our advantage.

1 comment:

  1. eToro is the ultimate forex broker for new and established traders.