From the Mises Institute, December 12:
DownloadsEconomists and the state are natural enemies. The central principle of economics is that the means for improving human well-being—what economists call “goods”—are naturally scarce and must be produced before they can be used to satisfy human wants. The scarcity principle also implies that, once produced, goods cannot be bestowed on one person without depriving some other person or persons of their use. In other words, there is no such thing as a free lunch. The state and its friends reject the scarcity principle and uphold its polar opposite, the Santa Claus principle, which Ludwig von Mises defined as “the idea that the government or the state is an entity outside and above the social process of production, that it owns something which is not derived from taxing its subjects, and that it can spend this mythical something for definite purposes.”1
One hundred years before Mises wrote this, the French liberal and laissez-faire economist Frédéric Bastiat exposed the Santa Claus fable underlying all arguments for state intervention in the economy while emphatically affirming the scarcity principle. It is worth quoting Bastiat’s argument at length: “Here the public, on the one side, the state on the other, are considered as two distinct entities, the latter intent upon pouring down on the former . . . a veritable shower of human felicities. . . . The fact is the state does not and cannot have one hand only. It has two hands, one to take and the other to give. . . . Strictly speaking, the state can take and not give. . . . [because] its hands . . . always retain a part, and sometimes the whole, of what they touch. But what has never been seen, what will never be seen and cannot even be conceived, is the state giving the public more than it has taken from it. . . . It is fundamentally impossible for it to confer a particular advantage on some of the individuals who constitute the community without inflicting a greater damage on the entire community” (emphasis added).2
Based on this reasoning, Bastiat formulated his justly famous definition of the state: “The state is the great fictitious entity by which everyone seeks to live at the expense of everyone else.”3
Bastiat also foresaw that once the Santa Claus view of the state was widely embraced by the public, the state would be able to grow without limit. The reason, according to Bastiat, is that the state is “composed of cabinet ministers, of bureaucrats, of men, in short, who, like all men, carry in their hearts the desire, and always enthusiastically seize the opportunity, to see their wealth and influence grow. The state understands, then, very quickly the use it can make of the role the public entrusts to it. It will be the arbiter, the master, of all destinies. It will take a great deal; hence a great deal will remain for itself. It will multiply the number of its agents; it will enlarge the scope of its prerogatives; it will end by acquiring overwhelming proportions.”4
Prior to World War I, economists as a group were hated and denounced by statists of all stripes—monarchists, socialists, nationalists, theocrats, democrats—because by exploding the Santa Claus myth, economists had exposed the state for what it really is: a predatory organization whose every action benefits itself and its cronies by victimizing those who earn their income by voluntarily producing and exchanging goods. In 1949, Mises emphasized the historical enmity between economists and the state: “It is impossible to understand the history of economic thought if one does not pay attention to the fact that economics as such is a challenge to the conceit of those in power. An economist can never be a favorite of autocrats and demagogues. With them he is always the mischief-maker, and the more they are inwardly convinced that his objections are well founded, the more they hate him.”5
Economics Takes a Wrong Turn....
Unfortunately, at about the time that Mises wrote this, the relationship between economists and the state was already beginning to undergo a radical change. This change was most clearly manifested in the publication of the first edition of Paul Samuelson’s celebrated textbook, Economics: An Introductory Analysis.6 In this book, Samuelson concocted what has come to be called the “neoclassical synthesis,” a vain attempt to combine the scarcity principle with the Santa Claus principle....
