Study their behaviors. Observe their territorial boundaries. Leave their habitat as you found it. Report any signs of intelligence.

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Thursday, November 06, 2008

Samuelson's Theory of Public Goods

In 1954 Paul Samuelson published his landmark paper The Pure Theory of Public Expenditure, which formalized the concept of public goods (which he called "collective consumption goods") -- i.e. goods that are non-rival and non-excludable. He highlighted the market failure of free-riding when he wrote: "it is in the selfish interest of each person to give false signals, to pretend to have less interest in a given collective consumption activity than he really has". His paper showed that "no decentralized pricing system can serve to determine optimally these levels of collective consumption".

Excludability is the ability of producers to detect and prevent uncompensating consumption of their products. Rivalry is the inability of multiple consumers to consume the same good. A public good is defined as a non-rival non-excludable good, such as national defense. Because public goods are not excludable, they get under-produced. The pricing system cannot force consumers to reveal their demand for purely non-excludable goods, and so cannot force producers to meet that demand.

The evidence for under-production of public goods is so overwhelming that, as anarcholibertarian professor Walter Block admits about the resulting justification for state intervention, "virtually all economists accept this argument. There is not a single mainstream text dealing with the subject which demurs from it." For standard treatments, see e.g.

Underproduction of public goods is inevitable in the presence of 1) the ability to free-ride (i.e. non-excludable goods) and 2) rational self-interest.

Samuelson's paper did not fully explicate the modern quadripartite theory of private/public/club/common goods, let alone formalize all the kinds of market failure inherit in that analysis. There was important work related to this both before and after 1954:
This nascent thread of work was largely ignored when Rothbard and Rand were setting their (and the future LP's) worldviews in concrete in the 1940s. That's a tragedy, because the mainstream modern libertarian theory of political economy is a far more formidable -- and palatable -- intellectual edifice than the brittle deontological dogma of Rothbardian Austrianism.

14 comments:

Daniel Grow said...

Holtz wantonly quotes Walter Block from footnote 15, Chapter 9, "National Defense and the Theory of Externalities, Public Goods, and Clubs," from the volume titled THE MYTH OF NATIONAL DEFENSE (Ludwig Von Mises Institute, 2003, ISBN: 0-945466-37-4). The quoted footnote was associated with the following text:

"So we know there is something wrong with this argument from externalities—or, at least, that this argument somehow cannot be made to apply to groups of people such as nations. But there is no reason given for the inability to generalize this argument. On the contrary, for its adherents, [FN15] there are no limits to its applicability."

To characterize Walter Block as conceding the point Holtz endeavors to make is to ignore the context of the footnote. But don't take my word for it; I invite anyone reading this to actually read The Myth of National Defense [http://www.mises.org/etexts/defensemyth.pdf].

I'd suggest that rather than conceding "mainstream" economic texts are correct, Block reaches quite a different conclusion, a distinction carefully obscured by Holtz.

Brian Holtz said...

Dan, it's sheer nonsense to say I'm suggesting that Block -- a committed anarcholibertarian -- concedes the correctness of the public goods argument for the justification of the state. I'm obviously just saying he concedes that it has nearly universal assent in the economics literature. If you think the latter situation should lead Block to that conclusion, I can't stop you from connecting those dots, but don't get mad at me if that's what your brain naturally wants to do.

Daniel Grow said...

Brian, you know what Block says. I know what Block says. But someone reading your post may or may not know Block, and there is a very good chance that such a reader would conclude from what you wrote that Block agrees there is "overwhelming" "evidence for [the] under-production of public goods" as well as your other arguments. I'd suggest Block would disagree your declarative statement about overwhelming evidence as well as the arguments you (as well as so-called "mainstream" economists) draw from the false premise. So the issue is not the truth the declarative statement about the existence of the evidence or the arguments drawn from any such evidence, but the wanton citation to Block that implies he has a view opposite to his actual view. Candor would require a fair statement of Block's views.

Brian Holtz said...

Dan, I write for an audience that, to the extent that it even exists, is assumed to understand what "anarcholibertarian professor" means, and to recognize that such a person is likely to disagree with mainstream economists. You are free to under-estimate this audience, but I won't be joining you.

daniel said...

Holtz, you are such an arrogant prick. You act as if you think that people take you seriously. That's funny!

Brian Holtz said...

This "daniel" doth protest too much, methinks.

daniel said...

No, Brian, you need to stop acting like such an arrogant prick. Even if I agreed with you on this, which I don't, I would still find your argumentative style highly offensive. If you were making the same argument Thomas Knapp is making, I would be thinking "He's right, but why does he have to be such a dick about it?".

Brian Holtz said...

"daniel" (or anybody who agrees with him), please quote me the most "arrogant" sentence you've noticed in any of my arguments, and demonstrate how I could make the same point in a way that you couldn't call "arrogant".

(I issue this challenge to every frustrated fundamentalist Christian and frustrated fundamentalist libertarian who levels this "arrogance" charge at me, but I never once have gotten an answer.)

daniel said...

So this sort of thing has happened before, Brian? You might want to take that as a hint that there is some truth to it, and take steps to clean up your act.

Brian Holtz said...

I've already told you what the common pattern is behind such charges of "arrogance". They are always interspersed among boorish insults from frustrated people with brittle worldviews built on dogmatic allegiance to a simplistic axiom -- such as "the Bible is inerrant", or "9/11 must have been a U.S. government conspiracy", or "the existence of government is never justified". Once I saw the pattern, the change to my "act" is what you see here: highlight the pattern, and challenge them to substantiate their character assassination with even one shred of evidence. They always fail to do so, just as I knew you would, and just as the next such dogmatist will.

daniel said...

Fine, Brian. I'll just ignore your "ass-holiness" from now on. Goodbye.

Brian Holtz said...

Just as predicted -- yet another fundamentalist sputtering the "arrogance" charge, but who can't be bothered to copy and paste anything to substantiate it.

Anonymous said...

SHUT YOU F**KING PRICK YOU DON'T KNOW WHAT YOUR TALKING ABOUT

Brian Holtz said...

Your anger measures how wrong you are.