The Classical Economists Were Right; The Public Debt is a DOUBLE Burden on the Free Market

Lending to government, therefore, may be voluntary, but the process is hardly voluntary when considered as a whole. It is rather a voluntary participation in future confiscation to be committed by the government. In fact, lending to government twice involves diversion of private funds to the government: once when the loan is made, and private savings are diverted to government spending; and again when the government taxes or inflates (or borrows again) to obtain the money to repay the loan. Then, once more, a coerced diversion takes place from private producers to the government, the proceeds of which, after payment of the bureaucracy for handling services, accrues to the government bondholders. The latter have thus become a part of the State apparatus and are engaging in a “relation of State” with the tax-paying producers.

137 Hence, despite Buchanan’s criticism, the classical economists such as Mill were right: the public debt is a double burden on the free market; in the present, because resources are withdrawn from private to unproductive governmental employment; and in the future, when private citizens are taxed to pay the debt. Indeed, for Buchanan to be right, and the public debt to be no burden, two extreme conditions would have to be met: (1) the bondholder would have to tear up his bond, so that the loan would be a genuinely voluntary contribution to the government; and (2) the government would have to be a totally voluntary institution, subsisting on voluntary payments alone, not just for this particular debt, but for all in transactions with the rest of society.

—Murray N. Rothbard, Man, Economy, and State with Power and Market, 2nd ed. of the Scholar's ed. (Auburn, AL: Ludwig von Mises Institute, 2009), 1027, 1027n137.

Since the Purchasing Power of Money Can Vary, Some Economists Tried to Improve on the Free Market by Creating a Monetary Unit with Stable and Constant Purchasing Power

The knowledge that the purchasing power of money could vary led some economists to try to improve on the free market by creating, in some way, a monetary unit which would remain stable and constant in its purchasing power. All these stabilization plans, of course, involve in one way or another an attack on the gold or other commodity standard, since the value of gold fluctuates as a result of the continual changes in the supply of and the demand for gold. The stabilizers want the government to keep an arbitrary index of prices constant by pumping money into the economy when the index falls and taking money out when it rises. The outstanding proponent of “stable money,” Irving Fisher, revealed the reason for his urge toward stabilization in the following autobiographical passage: “I became increasingly aware of the imperative need of a stable yardstick of value. I had come into economics from mathematical physics, in which fixed units of measure contribute the essential starting point.” Apparently, Fisher did not realize that there could be fundamental differences in the nature of the sciences of physics and of purposeful human action.

It is difficult, indeed, to understand what the advantages of a stable value of money are supposed to be. One of the most frequently cited advantages, for example, is that debtors will no longer be harmed by unforeseen rises in the value of money, while creditors will no longer be harmed by unforeseen declines in its value. Yet if creditors and debtors want such a hedge against future changes, they have an easy way out on the free market. When they make their contracts, they can agree that repayment be made in a sum of money corrected by some agreed-upon index number of changes in the value of money. Such a voluntary tabular standard for business contracts has long been advocated by stabilizationists, who have been rather puzzled to find that a course which appears to them so beneficial is almost never adopted in business practice. Despite the multitude of index numbers and other schemes that have been proposed to businessmen by these economists, creditors and debtors have somehow failed to take advantage of them. Yet, while stabilization plans have made no headway among the groups that they would supposedly benefit the most, the stabilizationists have remained undaunted in their zeal to force their plans on the whole society by means of State coercion.

—Murray N. Rothbard, Man, Economy, and State with Power and Market, 2nd ed. of the Scholar's ed. (Auburn, AL: Ludwig von Mises Institute, 2009), 847-848.

The “National Income” Approach Is an Attempt to Justify the Marxian Idea That Under Capitalism Goods Are “Socially” Produced and Then “Appropriated” by Individuals

The concept of national income entirely obliterates the real conditions of production within a market economy. It implies the idea that it is not activities of individuals that bring about the improvement (or impairment) in the quantity of goods available, but something that is above and outside these activities. This mysterious something produces a quantity called “national income,” and then a second process “distributes” this quantity among the various individuals. The political meaning of this method is obvious. One criticizes the “inequality” prevailing in the “distribution” of national income. One taboos the question what makes the national income rise or drop and implies that there is no inequality in the contributions and achievements of the individuals that are generating the total quantity of national income.

If one raises the question what factors make the national income rise, one has only one answer: the improvement in equipment, the tools and machines employed in production, on the one hand, and the improvement in the utilization of the available equipment for the best possible satisfaction of human wants, on the other hand. The former is the effect of saving and the accumulation of capital, the latter of technological skill and of entrepreneurial activities. If one calls an increase in national income (not produced by inflation) economic progress, one cannot avoid establishing the fact that economic progress is the fruit of the endeavors of the savers, of the inventors, and of the entrepreneurs. What an unbiased analysis of the national income would have to show is first of all the patent inequality in the contribution of various individuals to the emergence of the magnitude called national income. It would furthermore have to show how the increase in the per-head quota of capital employed and the perfection of technological and entrepreneurial activities benefit—by raising the marginal productivity of labor and thereby wage rates and by raising the prices paid for the utilization of natural resources—also those classes of individuals who themselves did not contribute to the improvement of conditions and the rise in “national income.”

The “national income” approach is an abortive attempt to provide a justification for the Marxian idea that under capitalism goods are “socially” (gesellschaftlich) produced and then “appropriated” by individuals. It puts things upside down. In reality, the production processes are activities of individuals cooperating with one another. Each individual collaborator receives what his fellow men—competing with one another as buyers on the market—are prepared to pay for his contribution. For the sake of argument one may admit that, adding up the prices paid for every individual’s contribution, one may call the resulting total national income. But it is a gratuitous pastime to conclude that this total has been produced by the “nation” and to bemoan—neglecting the inequality of the various individuals’ contributions—the inequality in its alleged distribution.

—Ludwig von Mises, The Ultimate Foundation of Economic Science: An Essay on Method, ed. Bettina Bien Greaves (Indianapolis: Liberty Fund, 2006), 77-78.