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TWELFTH LESSON. PUBLIC CONSUMPTION↩

On the division of income between public consumption and private consumption. — The proportion in which this division occurs. — What constitutes public services. — That the entirety of these services forms the social guardianship [1] exercised by governments. — The natural or useful functions and constitution of governments in the three phases of the economic development of societies, under the regimes of community, monopoly, and competition. — That governments begin with community and that their functions specialize along with those of private industry. — That every function or specialized industry first exists as a natural monopoly. — Examples. — How natural monopolies transform into artificial monopolies. — That every monopoly produces harm. — That governments must repress the harms caused by monopoly. — The rationale for the regulatory regime in the second phase of the economic development of society. — That governments themselves, in this second phase, are structured as monopolies, more or less limited. — Why the communal regime is then popular. — How society passes from the phase of monopoly to that of competition. — The useful functions of governments in the phase of competition. — That the production of security [2] must develop and improve in this phase; — that, conversely, the intervention of government in the production [481] and distribution of wealth ceases to have any justification. — The harms of consumption and the extent to which the government must intervene to prevent them. — That as the constitution of government evolves along with that of other enterprises, economic unity is established in each phase of the development of societies. — That this unity has now ceased to exist. — That government has remained in a state of monopoly while other enterprises have entered the phase of competition. — The evils resulting from this dissonance between the constitution of government and that of society. — Why a monopoly government becomes increasingly anti-economic within a society governed by competition. — Comparison. — Why governments have remained monopolies while private enterprises have been subjected to the law of competition. — How the question of the constitution of governments was considered at the time of the French Revolution. — That, in general opinion, this question was regarded as outside the domain of political economy. — Solutions that have been proposed. — The constitutional regime and its insufficiencies. — Other solutions: socialism, the principle of nationalities. — The futility of these utopias. — That the constitution of governments falls within the realm of political economy just as much as that of other enterprises. — A critique of the constitution of modern governments from an economic perspective. — That they violate the laws of operational unity, division of labor, natural limits, competition, specialization, and freedom of exchange. — The harms [3] that result for society from these constitutional flaws of governments. — The poor quality and ever-increasing cost of public services, the inequality of their distribution. — That governments are the ulcers of societies. [4] — The economic remedy for this affliction. — That governments must be simplified and subjected to the law of competition like all other enterprises. — That economic unity will thus be restored. — The possibility and outcomes of political competition.

Although consumption has generally ceased to be regulated, the domain of self government [5] in this matter is [482] not, however, unlimited. All income is divided into two parts: one is seized by taxation and serves to fund public consumption, while the other is left to the self government of the producer of income and serves to fund private consumption.

The sum that is levied in each country to meet public consumption expenses is more or less considerable. It is commonly estimated, in civilized countries, to amount to one-sixth or one-seventh of the income of each member of society. However, statistics on this point still leave much to be desired. While they specify the exact amount of tax per capita, they provide only incomplete information on the total taxable values and vague indications regarding the distribution and incidence of taxation. Moreover, they often neglect to add together general and local taxes, monetary taxes, and taxes in kind (such as conscription), so that the proportional share of income taken from each individual for public consumption remains highly uncertain.

Whatever the case, it is by means of this portion of the income of each member of society or of the capital through which income is constituted that provision is made for the expenses of governments that produce the services which form the object of public consumption. What do these services consist of, and what are the governments that produce them?

The first and most essential of public services concerns the need for security. This need arises, on one hand, from the moral imperfection of man, and on the other, from the nature of the environment in which he is placed. From the beginning, peaceful men [483] had to defend themselves either against individual aggressions or against collective aggressions from predatory men, not to mention the perils posed by attacks from other living creatures or natural disasters. Consequently, they were early compelled to establish a mechanism aimed at protecting them from the constant risks of destruction threatening their personal, movable, or immovable property. On the other hand, the predatory races, which combined their forces to subjugate the industrious and peaceful races, soon recognized the necessity of maintaining a certain degree of justice in their mutual relations and within the communities they had subjugated. Thus, we see even robbers submitting to rules always based, to some degree, on justice, without which their bands could not survive. Producing security is, in summary, the essential function of governments. To this end, they establish and maintain, on one hand, courts and police forces, and on the other, an army. The courts and the police are tasked with maintaining security within the community by protecting its members from murder, theft, and, in general, from any attack against their persons and property. The army, in turn, is responsible for defending the community against aggression or the unjustified claims of other communities, as well as, when necessary, expanding the clientele of the ruling class [6] through conquest.

These functions are common to all governments; they have existed everywhere and at all times. Many other functions have been added to these, but they do not share the same degree of permanence and universality. Not only do [484] governments provide security, but they also maintain natural communication routes and create artificial ones, mint currency, provide education, support religious institutions, subsidize the arts, protect agriculture, industry, commerce, and navigation in various ways, assist the poor, and intervene to varying degrees in all branches of human activity. These functions, which vary in number and extent according to time and place, constitute the social guardianship exercised in the name and interest of all over each member of the community or the "State."

Considered in its conditions of existence and development on one hand, and in its relationship with the needs it is meant to address on the other, the social guardianship [7] exercised by governments does not differ from other branches of human activity. It is subject to the same laws and passes through the same phases. In general, it tends to be organized in the most economical manner and to meet consumer needs as effectively as possible. However, at present, it is clearly lagging in both respects compared to other branches of production, and as these progress, the harms resulting from this delayed development in the most important of industries become more evident.

If we wish to understand the cause of this discordance [8] that manifests itself today between the state of governments and that of the other branches of social activity, we must first take a look at the natural phases of the economic development of societies and examine what, in each phase, are the useful functions and constitution of governments. [485] These phases are three in number: 1. community, 2. monopoly, 3. competition.

I. THE COMMUNITY.

In the beginning, societies were formed by the aggregation of a certain number of families that associated for mutual protection and assistance. [9] This grouping of families formed a tribe or a commune. When the families composing the tribe or commune found their means of subsistence in a rudimentary industry, such as hunting, the community was almost complete. When agriculture replaced hunting, each family began to produce its own means of subsistence independently, and private or patrimonial property gradually replaced communal property. The community then remained only for services that required association and the combination of individual efforts: these services initially consisted of establishing and maintaining a apparatus for defense, sometimes also one for aggression, if the community was a warrior tribe whose means of subsistence partly depended on robbery. But other needs arose successively that could likewise only be met through collective action: roads and bridges had to be built in the village and its surroundings, a well had to be dug, a temple had to be erected for worship, etc. Furthermore, the commune did not remain isolated; it had inevitable relations with its neighbors. It was necessary to delineate territorial boundaries and resolve the general or particular disputes that continuously arose from proximity; it was also necessary, if needed, to form offensive or defensive alliances. And finally, if one commune subjugated another, it had to keep the latter obedient.

At the same time, within the small community, [486] certain vices emerged, which, over time, were recognized as social nuisances: improvidence, moral corruption, and drunkenness. The portion of the community affected by these vices grew poorer and more degraded from generation to generation. Consequently, it became a source of weakness and ruin for the entire community. It was therefore necessary to root out these sources of decay or at least prevent them from spreading. This was addressed by establishing customs based on the experience of the harms caused by certain acts, and it was the government’s role to ensure adherence to these customs, which were indispensable for maintaining and advancing the community.

As public services thus became more numerous and complex to meet the growing needs of the community, their organization increasingly tended toward specialization. Initially, each family within the primitive tribe or commune contributed, according to its abilities and resources, to providing the materials and personnel necessary for the government: in this primitive state, just as the members of each family roughly provided for the subsistence and maintenance of the household by combining the trades of shepherds or farmers, weavers, blacksmiths, wagon-makers, etc., they also contributed to the government of the community of families by combining the roles of judges, guards, soldiers, etc. However, as the commune grew in population and wealth, and public services multiplied while improving, specialization became necessary. The needs of defense or attack, for instance, gave rise to the art of warfare; the needs of internal order and external peace [487] similarly led to the emergence of private and public law, as well as the profession of the police. These new professions, which required special skills and knowledge, could only be imperfectly practiced by everybody, and as they developed, they increasingly moved beyond the capability of the community. Thus, one gradually sees "specialization" appearing in public services, just as in private labor. However, specialization only appears when it becomes absolutely necessary. The profession of soldier, for example, long remained within the domain of the community, whereas officers, who needed to acquire specialized knowledge to perform their functions effectively, became exclusively warriors. [10] The functions of politicians, administrators, judges, priests, and teachers also specialized under the influence of the same cause. Among these functions of government, those with certain affinities initially remained grouped together while separating from others, and as society, through its growth, provided them with a larger market, they eventually separated further to form distinct branches of social guardianship. Like all other branches of labor, these became the domain of a group of families who passed down the necessary skills, knowledge, and practices from generation to generation.

In summary, society appears in the first phase of its existence as a coming together of families, each of which produces in isolation what it can with its own resources, and collectively what can only be produced through the association and combination of all forces—namely, internal and external security, communication routes, [488] etc. The members of each family contribute to producing the services necessary for the community, just as they produce the services necessary for the household, until progress leads, in public services as in private services, to the specialization of functions, ushering in a new phase of economic development in society.

II. MONOPOLY.

As the specialization of industries emerges, monopoly appears. Every specialized industry initially constitutes a monopoly. Let us clarify this with some examples. Before the establishment of a specialized blacksmith or wagon-making workshop within the embryonic society, each person more or less roughly performed these tasks as needed. But as soon as the market of the commune became large enough to sustain a blacksmith or a wagon-maker, one was inevitably established, and people immediately found it more advantageous to turn to this specialist for blacksmithing or wagon-making rather than to do it themselves; consequently, they ceased to know how to forge or make wagons and no longer possessed the necessary tools, thereby becoming dependent on the blacksmith or wagon-maker.

An even more striking example is bread-making. When each family bakes its own bread, some of its members, albeit imperfectly, practice the trades of miller and baker; additionally, the family possesses, either individually or communally, a mill and an oven. When the specialization of industries intervenes, families cease to grind their wheat and bake their bread, especially when they dedicate themselves to other specialized industries; as a result, they gradually lose [489] the knowledge and skills of milling and baking, and eventually, the mill and oven fall into ruin. At that point, they become entirely dependent on the miller and the baker. Undoubtedly, if the miller and baker were to charge exorbitant rates for their services, consumers could theoretically revert to the original system of home production. But time is required to rebuild the mill and oven, as well as to relearn the forgotten methods and techniques of milling and baking. Generally, when it comes to supplying necessities, at the beginning of the regime of specialization, [11] consumers may find themselves in a highly precarious situation—even worse than in their original state—if monopolists impose no limits on their demands. Will it be argued that consumers are free to abandon their specialized industries and return to producing their own foodstuffs? Perhaps! But they no longer possess the necessary productive factors, tools, materials, or knowledge for agricultural production, and until they can acquire, implement, and generate new products, they will be forced to endure the demands of the monopolists or face starvation. What we have said about food production applies to all branches of human activity; every industry necessarily passes through a phase of monopoly after leaving the embryonic stage of production. However, monopolies naturally cause harms to varying degrees, depending on whether they pertain to more or less essential goods or services. When they concern necessities, monopolies can lead to deadly levels of usury; [12] when they concern luxury goods or services, their [490] power remains weak, as demand decreases with increasing prices, often at an even faster rate (see Part 1, Lesson 3: Value and Price), and they can cause only insignificant harm.

Born with the specialization of industry, monopoly persists until competition can be fully established within the specialized function. However, it is a mistake to believe that the establishment of competition is everywhere and always immediate. Competition certainly tends to establish itself, and this tendency is all the stronger when monopoly concerns more necessary products or services and is, therefore, more productive; but it does not follow that competition must immediately replace monopoly. It encounters obstacles both in nature and in human behavior, and these obstacles are sometimes very slow to overcome.

Economic science distinguishes two types of monopolies: natural monopolies and artificial monopolies. Initially, every specialized industry exists as a natural monopoly, but this state is essentially transitory; it disappears as the number of specialized producers increases and the volume of their products grows, leading them to compete more. However, certain obstacles, some natural and others artificial, may intervene to delay the increase in the number of producers and the quantity of products. It may happen that the supply of factors or materials necessary for production is naturally limited, so that the supply of products cannot be raised to meet demand. Such is the case with certain wines and types of tobacco; such is also the case with certain exceptional abilities [491] in singing, dancing, writing, eloquence, etc.; and finally, such is the case with certain machines or economic processes for which no equivalent exists until a substitute is discovered. In these various cases, monopoly exists due to the natural limitation of production. It may also happen that consumption is insufficient to sustain a specialized industry except as a monopoly, and this case is much more frequent than generally assumed. Let us take the example of education: in an isolated locality, there is just enough population to support a single school. Whoever establishes this school will therefore enjoy a monopoly until the population has grown enough to support multiple educational institutions, or until security and transportation have developed and improved to the point where parents can send their children, without risk and at little cost, to schools or boarding institutions in other localities. Now let us consider commerce: in a given locality, there exists a market for imported products that is just large enough to sustain a single shop specializing in these goods. Consequently, a shop is established, but it retains control over the market until it becomes large enough to support a second shop. If the shopkeeper abuses his monopoly, an entrepreneur attracted by the extraordinary profits may indeed enter into competition with him; but if the market is too small to sustain both rival establishments, the weaker one must inevitably fail. In this case, consumers remain [492] at the mercy of the shopkeeper and will be more or less harshly exploited depending on how difficult it is for them to do without the products he monopolizes, or whether they have the possibility of purchasing them at periodic fairs or from itinerant merchants. In the two cases just cited, as well as many others, monopoly exists due to the natural limitation of consumption.

To these natural monopolies, which arise from circumstances beyond human control, are added artificial monopolies, which are the result of human choice. In every industry, the advent of competition immediately and perceptibly reduces profits. It is therefore only natural that producers attempt to ward off such a dangerous adversary by artificially prolonging the natural duration of their monopolies. If they possess a certain amount of power or influence, they will not hesitate to use it for this purpose; they will seek to prohibit the establishment of similar enterprises, or if competing enterprises arise beyond the limits of the community to which they belong, they will seek to prohibit the importation of those competitors’ products. In this case, monopoly exists due to the artificial limitation of production.

Now, every monopoly, whether natural or artificial, is inherently productive of harms. The producers who hold such monopolies extract from all other branches of production a rent or an usurious rate of interest equivalent to the difference between the natural or necessary price of a product and the price to which monopoly raises it. This difference varies, as [493] we have seen, according to the nature of the product; it can be enormous and therefore cause a deadly harm when it concerns essential goods; conversely, it can never rise very high when it concerns luxury goods. However, the harm caused by monopoly does not stop there. On one hand, the ease with which monopolists reap usurious profits slows the progress of monopolized industries and can even lead to their decline; on the other hand, the tribute society pays to monopolists hinders the development of both population and overall wealth. As a result, consumption does not increase and often even declines, leading monopolists ultimately to be engulfed in the very ruin they have caused. Monopoly was the original cause of the weakening and, consequently, the violent destruction of ancient societies, and today, a community given over to monopoly would be no less inevitably ruined by the peaceful competition of other communities.

In this second phase of the economic development of societies, what are the useful functions and structure of governments?

Governmental duties and functions must necessarily increase in both number and importance as the specialization of industry and the exchanges resulting from it replace embryonic production. In this new state, exchanges first require the creation of a specialized apparatus of protection, tasked with regulation of the market, verification of weights and measures, and control of currency. Additionally, society as a whole demands a greater level of security. Since the specialization of [494] industries results in a considerable increase in the wealth which is produced, society becomes more exposed to external aggression; even internally, the growth in the volume of appropriated wealth, or “property,” multiplies the number and severity of conflicts which emerge between property owners. Consequently, public services dedicated to both external and internal security must be developed. But to these functions, which are merely extensions of those of the first phase, new ones are added that belong specifically to the second phase—namely, the regulation of monopolies.

As we have seen, all branches of industry, when first specialized, initially constitute natural monopolies, which have an irresistible tendency to be transformed into artificial monopolies. An individual engages in a specialty, thereby holding a monopoly; if the market is large enough to sustain additional enterprises, they are established, but as long as the market is not unlimited and potential entrepreneurs remain few, they naturally tend to collude in order to limit competition, since competition immediately reduces their profits. Thus, from the very beginning of this second period, all branches of work become organized into corporations [13] composed of various groups whose members are permanently united. These different groups, united or organized for the purpose of monopolizing the specialized branch of industry which provides them with a livelihood, divide up the domain of production among themselves, and soon society as a whole becomes merely a collection of these groups. These groups have their [495] officers of entrepreneurs and their armies of workers, who are furnished with a guaranteed livelihood by the customers they have appropriated and to whom those excluded from the corporation cannot sell. Under this regime, even the most necessary tool of work, land, becomes a monopoly in the hands of a corporation with exclusive right of owning it. Initially, members of this corporation cultivate their land themselves with the help of their servants or slaves; later, as these servants or slaves acquire the necessary skills to manage agricultural production themselves, the landowners divide up part of their seigneurial domains for them to use, while requiring them to cultivate the remaining portion—in other words, giving them a part of their domain which they have to rent, the price of which is a certain amount of labour in the form of a "corvée" (compulsory labor obligation). But the monopoly of land persists to this day: on one hand, the land cannot be owned by anyone who is not a member of the corporation; on the other, the consumers of this tool of labour are immobilized on the seigneurial land, and thus are subjected to the monopoly of renting held by the seigneur; while the seigneur, for his part, cannot rent his land to outside workers. The entire domain of production is thus divided among multiple monopolies. However, these monopolies are extremely unequal in power, depending on whether they concern goods which are more or less essential to living. If left unchecked, those monopolizing the most essential goods could exploit others in direct proportion to the intensity of the needs they serve. Hence, it is necessary to impose a limit or a check on those monopolies whose power [496] is greatest and whose abuse would cause the most harm to society. Accordingly, the government intervenes to regulate and limit the most dangerous monopolies, imposing a maximum price on goods [14] necessary for living and on the return on capital (interest); it similarly limits land rents by capping the number and duration of compulsory labor dues. This regulation of the monopolies which produce the most harm was always imperfect, no doubt, but it was indispensable to prevent society from being subjected to the unchecked exploitation by monopolies which, because of their nature, had greater power than the majority of industries. Should it been argued that, instead of regulating monopolies, it would have been better to abolish them? In most cases, such abolition was impossible. For example, abolishing bakers’ guilds, [15] butchers’ guilds, or grain merchants’ guilds in the restricted markets of the Middle Ages would have been in vain, as they would have been constantly remade by new groups which would be more dangerous as they would have to be secret. It was therefore better to allow monopolies to exist openly, when their outright suppression was impossible, and to impose limits that experience demonstrated to be most beneficial for the community. The regulatory regime, which we rightly criticize today, was then fully justified, as it was the only effective means of curbing the harms caused by monopoly.

Finally, in this second phase of the economic development of societies, the policing of the nuisances of consumption becomes more important as consumer goods [497] increase in number and become more easily accessible to the masses, who are still incapable of proper self government. Sumptuary laws must be continuously extended to a greater number of objects. It should be noted, however, that this aspect of social guardianship tends to move away from governmental functions as the community becomes more specialized. entrepreneurs of industry organized in guilds, and workers gathered in trade societies [16] regulate their own consumption for the sake of the existence and progress of the special communities to which they belong, and their sumptuary regulations against drunkenness and debauchery, for example, render superfluous the intervention of the government, which oversees the guardianship of the general community which is composed of the sum of these specialised communities.

Now, what is, in this phase of society’s development, the natural constitution, or, what amounts to the same, the useful constitution of government? We have seen that the functions of government tend to specialize like all other branches of human activity. Everywhere, they become the specialty of a more or less numerous group of families who share them and strive to maintain their monopoly. The government appears as a corporation or a collection of corporations which are superimposed on those which have monopolized other branches of work. These governing corporations not only repel the competition of outsiders attempting to share power with them, but they also resist, as much as possible, any attempt to limit their monopoly through regulation and the setting of a maximum price. Hence, there are constant struggles between the [498] governing corporation and the masses subjected to its monopoly, with the latter continuously striving to limit its power while the former endeavors to maintain it intact. Hence also the attempts made to seize this monopoly—the most powerful one, since it commands the coercive force which has been organized for common defense and is therefore the most productive. Such attempts are deemed criminal when they fail and glorious and liberating when they succeed, yet in the latter case, they almost always result in merely replacing experienced and well-fed monopolists with inexperienced and hungry ones.

Nevertheless, the specialization of the functions of government has been a form of progress. This is why democratic republics, in which government was the affair of all members of the community, have one by one been transformed into oligarchic republics or monarchies, whose essential characteristic was the specialization of the functions of government within the class of individuals possessing the necessary skills to exercise them. How is it, then, that these primitive communities have remained an ideal that men have constantly, though in vain, sought to reclaim? It is because governments, in specializing, have become monopolies, and the abuses they inevitably committed with their power on one hand, and the insufficiency and inefficacy of the measures taken by the “consumers of governmental services” [17] on the other to prevent or correct these abuses, naturally led to feelings of regret for (having left) the previous state of affairs. Let us clarify this with a simple comparison. Suppose each family ceases to produce its own food in order to engage in a specialized industry; it [499] will henceforth have to procure supplies from producers or merchants of foodstuffs. If circumstances are such that sufficient competition cannot be established among these suppliers of life’s necessities, and if, on the other hand, the regulations intended to limit the power of their monopoly remain ineffective, will not the exploited consumers regret (having left) the former state of affairs? Will they be able to restore it? And even if they manage to do so, returning from specialized production to an embryonic state of production, will they have achieved progress? No! They will have regressed, and the natural course of things will soon bring them back to where they started. The democratic republic, in which each person participates in the public functions necessary for the community, is, as we see, a regressive ideal. However, we can understand how the abuse of the political monopoly by the ruling classes has made this ideal popular, just as we can understand how the abuse of the monopoly over life’s necessities has led people to idealize that primitive state of society in which each person was his own grain merchant and baker.

III. COMPETITION.

It is the successive expansion of the consumer market that determines society’s transition from embryonic and communal production to specialized and initially monopolized production, and then to competitive production. How does this expansion of the market take place? Through the progressive development of production within and outside the commune. As soon as a market emerges for a specialized enterprise, such an enterprise inevitably arises. Thus, as soon as there are [500] enough farmers in a village to provide a livelihood for a wheelwright, a wheelwright’s workshop is established. If the number of farmers increases, if their wealth grows, and if means of communication are established between the village and the surrounding hamlets, the wheelwright will be able to expand his workshop and hire more assistants and workers. Soon, the market will be large enough to support a second workshop, then a third; but the entrepreneurs engaged in this industry will not fail to form a coalition, then a permanent guild to monopolize the market. However, if the market continues to expand, a time will come when the existing enterprises will no longer suffice to meet demand, and people will call for industrial freedom—that is, competition—and despite the desperate resistance of the monopolists in wheel-making, competition will eventually be achieved. What will happen then? First, the manufacturers of carts, carriages, etc., will try to form a new coalition; but if they succeed and their profits rise to an exceptional level, new enterprises will be established to compete with them. Then, if they can no longer prohibit internal competition, they will at least try to protect themselves against foreign competition by securing a ban on the importation of foreign-made carts and carriages into their community. And all other producers will act in the same way. However, if the market continues to expand, if fast and inexpensive means of communication are established between the now more numerous and wealthier communities, these restrictions on competition will eventually become detrimental to the very interests they were meant [501] to protect. Indeed, while cart and carriage manufacturers may wish to maintain their monopoly over their market, they also have an interest in seeing it expand. This market can grow both internally and externally. Internally, its expansion can result from two causes: an increase in the number and resources of consumers of carts and carriages, and a reduction in the price of these vehicles, making them accessible to more consumers. Externally, the market’s expansion can result from the same causes, with the additional factor of improved means of communication, which effectively reduce the costs of production over distances. However, experience gradually shows that while limiting competition secures the market, it does so by hindering its expansion both internally and externally. For example, protectionist policies favoring suppliers of raw materials for carts and carriages increase the costs of production, thereby reducing their market size both domestically and abroad. It is true that banning foreign carriages artificially expands the market for national producers, potentially compensating for this reduction. But the same does not apply externally. There, manufacturers must compete with foreign producers, and those whose costs of production are burdened by protectionist surtaxes on raw materials, etc., compete at a clear disadvantage. Eventually, as foreign markets become increasingly accessible, the protectionist regime causes greater losses abroad than it generates gains domestically—if indeed it produces any domestic gains at all. [502] At that point, protection is abandoned, free trade is added to free industry, and despite the desperate efforts of interests clinging to monopoly, society enters the era of competition.

What, in this new state, are the natural functions and constitution of government?

We are familiar with the natural functions of government in the two previous phases of economic development in societies. In the phase of competition, which we are beginning to enter, these functions undergo further modifications, both additions and reductions. In this phase, societies, growing rapidly in number and wealth, require better, more firmly established, and more extensive security. To establish and maintain order within a multitude of interests in constant interaction, both more precise justice and greater power to enforce it are required. Moreover, as property multiplies and diversifies infinitely, the apparatuses that serve to protect them must also be multiplied and diversified. The production of inventions and literary production, [18] for example, gives rise to a considerable number of properties of a particular kind, whose spatial and temporal limits generate continuous disputes. To resolve these contentious issues, an ad hoc kind of justice is required. In other words, justice must expand and diversify in response to the expansion and diversification of the opportunities that the growth and multiplication of all branches of wealth offer to fraud and injustice. Finally, security must extend, so to speak, through space and time. If the development of communication routes and the progress [503] of industry allow people and goods to be transported to the farthest reaches of the globe, they must find there sufficient guarantees of security; otherwise, they will not travel. If contracts or agreements are made for long periods, or even indefinitely, as in the case of perpetual annuities, the enforcement of these contracts or the fulfillment of these commitments must still be ensured; otherwise, they will not be entered into. The “production of security” must therefore develop and improve in this new phase of society’s existence, in proportion to the expansion and refinement of the need it must fulfill.

On the other hand, while the natural functions of government increase and become more complex in this respect, they diminish and simplify in another. The government no longer has to intervene in either the production or the distribution of wealth. It need only cease supporting artificial monopolies and allow competition to act, gradually eliminating natural monopolies. Once this is accomplished, the production and distribution of wealth will naturally tend to occur in the most useful manner.

We believe it unnecessary to revisit these two points in detail, as we have sufficiently highlighted them. (See Part I, Sixth Lesson, and Part II, Eleventh Lesson.) When it comes to production, not only do enterprises always form under a regime of full competition in the numbers, forms, locations, and spatial and temporal limits that are most useful, but entrepreneurs are also compelled to adopt the most economical processes and methods. For progress becomes a condition of survival for them. If they produce at higher costs [504] than their competitors, their production expenses soon exceed their revenues, their capital is eroded, and they are forced either to liquidate their enterprises or to declare bankruptcy. As for the distribution of wealth, just as competition continually works to make production more economical, it also works to make the distribution of products as useful—or, what amounts to the same, as just—as possible. Under a regime of full competition, the prices of all goods have an irresistible tendency to align with the costs and profit which are necessary to produce and bring these goods to market. When, under such a regime, a commodity is temporarily scarce in a market, when, on the other hand, demand for it is high and urgent, and when its price rises accordingly, generating a rent for the beneficiaries of this accidental monopoly, the lure of this rent inevitably attracts competition, supply increases, prices fall, and the rent disappears. Thus, there is no longer any need for artificial regulations to limit usury, which is nothing more than the rent of a monopoly; the natural regulator of competition, acting through mechanism of the law of supply and demand, [19] makes usury impossible or eliminates it as soon as it arises. By driving the market prices of all things toward the level of necessary costs of production, competition ensures that the holders of various productive agents [20] receive a share exactly proportionate to the amount of effort they have expended—no more, no less.

The intervention of government in the production and distribution of wealth, as we see, ceases to have any justification under a regime of full competition. More than that, [505] after being useful in the previous two phases—either to compensate for the insufficiency of individual efforts or to curb the excessive power of monopolies—it now becomes harmful. If the government engages in an industry, it must artificially suppress competition to compensate for its industrial inferiority, thereby turning the industry into a monopoly. If the government regulates an industry, it likewise discourages competition in the regulated enterprises, returning them to the economically inferior state of monopoly.

On the other hand, can the government still intervene usefully to address the harms of consumption? If the masses are incapable of good self government of their consumption, the government clearly has grounds for intervening to suppress or prevent the harm they cause by neglecting, for example, their moral obligations in order to indulge their material appetites. Two scenarios may arise here. If it concerns individuals who possess the necessary faculties to govern themselves, the government should merely repress the harms they create by governing themselves badly, without attempting to replace their management of their own affairs with its own. Otherwise, it would prevent the moral faculties necessary for proper self government from developing through constant exercise, thereby failing to provide a sufficient counterbalance to purely material appetites. An individual who is governed does not need to exert the effort required to govern himself; thus, the faculties he possesses for carrying out this work remain inactive, and obviously can't reach their full and useful development. They also run the risk of atrophying. [506] If, on the contrary, it concerns individuals who do not yet possess the faculties required for self government—also known as "hommes-enfant" (childlike men) and are in need of guardianship appropriate to their moral state—the government may have grounds for assuming this guardianship. However, its other responsibilities would prevent it from fulfilling the role of guardian [21] of those who are incapable as effectively as a specialized enterprise could. For this reason, the guardianship of individuals incapable of self government is likely, in due course, to become the object of a branch of industry that will eventually emerge from the gradual transformation of servitude. (See Part II, Ninth and Tenth Lessons.)

Thus, in the three economic states we have just examined, the natural or useful functions of government consist in minimizing, as much as possible, the harms that arise in the production, distribution, and consumption of wealth. These harms differ according to the state of society; hence, the intervention of government to prevent them must also differ: in the first phase of social development, for instance, the government must undertake certain works that could not be carried out by individual efforts alone and whose absence would be harmful to society, whereas in the subsequent two phases, it must limit itself to prohibiting positively harmful acts.

The natural or useful constitution of governments changes just as their functions do according to the state of society. In the first phase of social development, governmental functions are performed by all members of the community. In the second phase, they become specialized and [507] become the monopoly of a class or a corporation. In the Middle Ages, for example, society as a whole was divided into corporations, within which the various branches of human activity, from the highest to the lowest—security, religion, education, the arts, industry, commerce—were specialized and monopolized. At that time, there was unity between the constitution of government and that of society. The governing corporations were structured exactly like those of masons, tailors, shoemakers, and bakers. Each corporation, whether high or low, had its domain, which it exploited exclusively and sought continuously to expand at the expense of other corporations, both internally and externally. Within this domain, consumers were at the mercy of the corporation, unless they had managed to impose restrictions on the power granted by its monopoly. These restrictions, of which the maximum price was the main safeguard, constituted a set of protections against the abuse of monopoly. The governing corporations, like the others, eventually had to submit to these limitations despite their efforts to maintain their monopoly intact and to exercise it in full. In economic terms, charters or constitutions are nothing more than applications of the regime of the maximum price , enacted for the benefit of consumers of public services. In England, for instance, where the governing corporation was early on forced to take consumers into account, the constitution gradually expanded with the guarantees they were able to secure, whether willingly or by force. Except in countries where the ruling class itself is subject to a hereditary leader, like the crew of a ship to its captain (and even such an absolutist government may have its raison d'être in certain circumstances), we see everywhere [508] that this class governs itself as a large corporation. It has its parliament, in which its principal members sit, and without whose consent no important measure is enacted. Opposite this parliament, which serves as the governing corporation’s council, stands, in countries where consumers have successfully imposed some limitations on its monopoly, an assembly composed of their delegates, tasked with defending their rights and interests against particularly harmful abuses of monopoly. This assembly of representatives or delegates of the consumers oversees the useful production and distribution of public services, negotiates their prices, and is thus in constant opposition to the leaders or representatives of the governing corporation—unless it allows itself to be intimidated or corrupted by them. Such, respectively, are the House of Lords and the House of Commons in England.

In summary, in the first phase of society’s existence, public services are produced, like all others, by those who consume them; in the second phase, as they become specialized, they pass into the hands of corporations, whose monopoly—at first unlimited—is gradually restricted as its abuses become evident, to the benefit of consumers. This restriction is achieved through a system of guarantees and maximum price controls, which experience shows to be the most effective means of ensuring the best and most economical production of public services. This system does not differ from that applied to corporations that similarly monopolize other branches of production. Thus, the natural or useful constitution of government is fully in harmony with that of all other enterprises; [509] in other words, there is unity between the political and economic constitution of society.

Now, if we know, on the one hand, what the useful constitution of the production of public services and that of private services production was in the first two phases of social development, and on the other, what the useful constitution of the production of private services is in the third phase, it will be easy for us to determine what the useful constitution of public services should be in this third phase. If, thanks to the progressive expansion of consumer markets, enterprises that provide the goods and services necessary for private consumption pass from a regime of more or less limited monopoly to a regime of competition, it stands to reason that the constitution of governments producing public services must inevitably undergo a similar transformation. They too must move from a regime of monopoly to one of competition, and economic unity will thus ultimately be established in the third phase of the development of societies, just as it was in the two preceding phases.

At present, however, this economic unity does not yet appear to have been reconstituted. While enterprises that cater to private consumption are, for the most part, already placed under the regime of competition, the government producers of public services remain stuck in the old regime of monopoly. This results in an abnormal and perilous situation, for just as communal governments could no longer suffice for societies that had entered the phase of monopoly, monopoly governments can no longer suffice for societies that have entered the phase of competition. [510] In simpler terms, if the governments of the first phase were anti-economic (uneconomic) in the second, then those of the second phase must be anti-economic [22] in the third.

Let us use another simple comparison to fully illuminate the growing lack of unity between the constitution of governments and that of the multitude of enterprises that make up social activity. Consider the village shop—when does it become established, and how does it develop? It is established when the families that make up the embryonic society of the village have become numerous and prosperous enough to provide it with a stable market and thus sufficient means of livelihood for the shopkeeper. At first, however, due to the small size of the consumer market, the shopkeeper must combine his trade with one or more other crafts and stock a very diverse range of goods. But as the village grows into a town and then a city, and as the shop’s “market” expands accordingly, the shopkeeper must increasingly specialize his business. If he continues to practice another trade, he will no longer be able to keep up with his growing business. If he continues to sell the same variety of goods, it will become increasingly difficult to meet demand, as consumption will require both greater quantities and a wider assortment of each product. If he sells cutlery, he will now need not only knives but also scissors, penknives, razors, etc.; if he sells perfumes, instead of one coarse type of soap, he will need a dozen varieties, along with essences and cosmetics. Having become a merchant in a [511] larger consumer market, he must therefore specialize his trade more and more. Instead of selling groceries, haberdashery, perfumery, and cutlery, he will have to limit himself to selling groceries—or even just one type of grocery, such as tea or coffee. In short, instead of engaging in twenty forms of commerce in the embryonic state, he must focus on one in the specialized state. Things will necessarily unfold this way, provided that commerce remains free through the successive phases of the village’s economic development. In that case, competitive pressure will force the original shopkeeper to specialize, for if he maintains his old ways, he risks losing customers, as he will no longer be able to serve them as efficiently or as cheaply as his specialized competitors. But the situation will be different if the shopkeeper, initially enjoying the natural monopoly of supplying the village, has enough power or influence to maintain that monopoly in an artificial state. What will happen then? The shopkeeper will continue his trade as before; however, as his market grows, he will have to expand the scale of his business. Eventually, when the village becomes a large city, he will turn it into a vast bazaar. [23] If he finds it impossible to meet a demand that now includes as many thousands of items as it originally included single ones, he may abandon some of the less profitable branches of his monopoly or, at the very least, tolerate the establishment of a few other stores for these secondary branches—on the condition that they exist only at his pleasure and pay him tribute. At the same time, [512] he will jealously protect the main branches of his monopoly.

However, as the consumer market grows and diversifies, the monopolist grocer’s [24] establishment operates under increasingly uneconomical conditions. [25] While other industries separate in accordance with the principle of the division of labor, develop within their natural limits, and improve under the stimulus of competition, those industries he monopolizes grow artificially, outside these organic conditions of economic growth. What is the result? Competitive industries deliver ever more improved products to consumers at decreasing prices, while the monopolized trade lags further behind in both respects. Nevertheless, if this trade concerns essential consumer goods, the monopolist’s profits will continue to grow solely due to the progressive expansion of the market.

Let us push our hypothesis [26] to the limit. As the progress of competitive industries makes the stagnation of the monopolized trade more apparent and harmful, consumers will increasingly protest against the monopoly. However, if it is safeguarded by some ancient superstition—if people universally believe that commerce in the grocery business is naturally meant to be a monopoly—they will at first limit themselves to regulating it, imposing on the monopolist the obligation to properly supply the market which has been enfeoffed to him [27] and perhaps even subjecting his goods to a maximum price. Finally, perhaps consumers could appoint delegates to ensure [513] that these regulatory measures protecting their interests are strictly enforced. The monopolist will naturally resist such interference in his business, using both coercion and corruption to rid himself of it. If he succeeds in leaving consumers completely at his mercy, he will have two options:

1.) He may prohibit, under severe penalties, any complaints about the quality and price of his goods, thus enjoying his monopoly in peace. But in that case, society—held back and drained by an unchecked monopoly—will weaken and eventually collapse, dragging the monopolist down with it.

2.) He may try to satisfy his disgruntled consumers by improving his goods in both quality and price. However, the anti-economic foundation of his business will prevent him from making sufficient and lasting improvements. Discontent will soon resurface, and if consumers have grown in number and power, they may eventually gain control over the monopolist.

What will be the consequences of this “revolution”? There are two possibilities: consumers may impose a set of rules and guarantees on the monopolist to ensure the quality and affordability of his goods—in other words, they may force him to accept a constitution. Alternatively, they may seek to operate the grocery monopoly themselves, establishing a management board and a supervisory council with various safeguards to ensure proper administration. But both remedies will be almost equally ineffective. No matter how it is structured or managed, the monopoly over this multitude of branches into which the original small-scale grocery business [514] has now expanded will remain anti-economic—and with each passing day, it will become more so. As a result, it will cause society ever greater and more noticeable harm. At that point, alternative solutions may be sought for this chronic problem. Some may believe that the market of the monopolized business is too small and will attempt to expand it by “annexing” new consumers. Furthermore, others may become convinced that the problem lies in the fact that those who sell groceries and those who buy groceries do not all belong to the same race and they may attempt to reorganize the grocery monopoly in accordance with the “principle of nationalities.” But experience will soon show that these supposed remedies only worsen the problem instead of solving it. Finally, as a last resort, after exhausting all empirical solutions, people will turn to observation and analysis to trace the root of the issue—and, to their surprise, they will discover that it is not true, as the monopolists had long claimed (and perhaps even believed themselves), that monopoly is the necessary and providential form of the grocery business. Consequently, instead of pursuing the impossible task of better “organizing” this monopoly, efforts will be directed toward knocking it down, transferring the various branches of the grocery business, one by one, into the domain of competition. Once this unnatural aggregation is dissolved, each newly liberated branch will develop under normal conditions, in proportion to the needs of the market, and society—freed from a monopoly that had held it back and drained it—will grow more rapidly in both population and wealth.

[515]

Such is the history of governments since society began moving from the phase of monopoly to that of competition.

When the general progress of population and wealth on the one hand, and the specific progress of security and means of communication on the other, expanded the markets for all products and services, the corporations that had held the monopoly over various branches of human activity for centuries in each locality became increasingly inadequate to meet the growing needs of these expanded markets. Then, apostles of a new science emerged, striving to demonstrate that this ancient organization of industry had become obsolete and that, in the interest of society, competition should replace monopoly. The privileged corporations did not fail to defend themselves, but as the interests harmed by their monopolies grew daily, the weaker corporations—those occupying the lower and middle levels of society—eventually succumbed. In contrast, those in the upper levels, whose functions were surrounded by particular prestige, avoided the new regime imposed on the others. People had grown accustomed to believing that governments, having to fulfill a mission of sublime character, could have nothing in common, in their establishment and operation, with the multitude of other enterprises, and no one even conceived that the rules applied to these enterprises might also be applicable to governments. Such was the prevailing thinking when the French Revolution placed on the agenda the reconstitution of government and society itself. [516] The dominant opinion at that time, at least among the enlightened classes—whose influence, despite temporary eclipses, always and necessarily ends up prevailing—was that the multitude of lower branches of human activity should be left to competition, though always with certain restrictions. Thus, it was believed that industries and professions concerning the food supply of the masses should remain strictly regulated. It was also thought necessary to prevent the formation of large associations to avoid a return to the abuses of the regime of the corporations. Finally, there remained a remnant of the economic law of the old regime: the belief that the national market was the property domestic industry and that fas a result foreign competition should be excluded from it as completely as possible. However, once these restrictions were in place—though they were numerous—enlightened minds agreed that competition was the only suitable regime for most branches of work concerning material goods. At the same time, they restricted the application of this new science, which could be summed up in the theory of competition, strictly to these branches. Conversely, these same enlightened minds—who, it should be noted, almost without exception were members of the old governing corporations—were convinced that the functions previously assigned to these higher level corporations, such as security, money, transportation, religious worship, and education, ought necessarily to be held by the government due to their very nature. To this, they added that political economy had no business concerning itself with these matters. Thus, the task at hand was to constitute government without regard for the principles of economic science, [517] but in a way that would nevertheless allow it to fulfill as effectively as possible for society the numerous and important functions assigned to it.

Since the competence of political economy in matters of government was thus denied, it is not surprising that, in attempting to solve the problem of the useful constitution of the production of public services, the approach taken was the one most distant from it (political economy). What was done? First, all the services that, under the old regime, had been part of the domain of separate corporations—the service of security, the service of education and the services of education and religion, the service of providing money, the service of transportation, etc.—were merged into a vast “administration” of public services. Then, an attempt was made to place this administration in the hands of a communal democracy whose institutions were modeled on those of the embryonic phase of the existence of society. However, while it was possible, albeit a backward move, to merge services of different kinds into a single administration, it was impossible to operate this unwieldy and monstrous machine without a specialized workforce. Consequently, a governing class was reconstituted, in which the former government personnel merged with the new elements brought forth by the revolution. This necessary class could now be recruited more easily than before from the mass of the nation, as all public offices were made accessible to it, but the families that had previously composed it (the ruling class) naturally passed down from generation to generation these political, military, judicial, and administrative functions which had provided them with a livelihood. This they did by bequeathing these traditions (to their children) by the education they gave them at home, [518] and their customary connections enabled them to secure positions for their descendants. In the same way, families devoted to agriculture, industry, and commerce commonly pass down the enterprises that provide them with a living from generation to generation.

Thus, the monopoly of government was reconstituted in the various branches of work previously assigned to it—and one could even say that it regressed by merging industries that progress had previously separated under the regime of monopoly. It was also reconstituted with the special workforce required for the production of public services.

To be sure, this monopoly was more strictly regulated and subjected to a maximum price than it had been before, and this was believed to be the way if had to be. Indeed, by reconstituting, on the one hand, with the debris of the former governing corporations, a colossal corporation invested with the monopoly of the most essential services to society, and by dissolving, on the other hand, all the lower level corporations while preventing their reconstruction in forms adapted to the regime of competition, society governed (in this way) was reduced to a shapeless dust, leaving the now isolated consumers of public services at the mercy of a formidable conglomerate that once had been awarded the monopoly (of providing them). It was therefore crucial to provide the mass of consumers with the most complete and clearly specified guarantees against the abuse of this monopoly—one that, by the nature of things, was bound to fall back, much like before, into the hands of a class specifically devoted to the production of public services. This was the purpose [519] of constitutions, that is to say, the procedures for the regulation and limitations of the monopoly of governmental, which have been particularly popular since the French Revolution. Initially, people had boundless confidence in these political regulations. They were convinced that, with a well-crafted constitution, a people could be permanently safeguarded against the abuses of bad government. Experience soon dispelled these illusions. Instead of providing good government, constitutions often became instruments of exploitation in the hands of the upper classes, who skillfully secured control over government, which, in reality, was monopolized by them. In response, the classes exploited by this monopoly staged revolutions to seize control of it in their turn. But since revolutions merely shifted the monopoly of government—almost always making it worse, as it had to be expanded and thus made even more burdensome to accommodate the conquering classes who were more numerous and starving than classes they replaced—the problem remained. Constitutional remedies gradually lost their credibility, and new ones were sought. Some imagined, for example, that the issue did not stem from the poor constitution of the government but from the flawed constitution of society itself. They sought to extend the system of the organisation of public services to all other services—in short, to encompass all of society within the government. This was the panacea of socialism, which was fundamentally progress in reverse. Political economy, supported by the interests threatened by socialism, easily defeated it, but as social malaise persisted, another [520] panacea soon took its place. It was then claimed that the problem lay in the fact that governments were not sufficiently “national,” meaning that the monopoly of public services was, in whole or in part, in foreign hands. This led to the agitation of the so-called nationalities question. [28] That is where we stand today. It is believed that the distress afflicting civilized nations stems solely from the fact that some of them are ruled by foreign governments, and it is concluded that the utmost priority is to return the monopolies of government to the “native born” (members of the nation). [29] Once that is accomplished, regardless of the ignorance and immorality of the members of the nation , the (provision of) public services will leave nothing to be desired, and nations will enter the blessed era of freedom and peace. Consequently, people are being urged to shed their blood and spend their wealth to reestablish “nationalities” as quickly as they can, or, in other words, to place each group or sub-group of the human race under a monopoly of government which belongs exclusively to members of this group or sub-group. We do not yet know what will come of this new utopia. However, assuming it is successfully realized, we can affirm that social malaise would persist nonetheless. It would likely even worsen—first, due to the enormous costs of the revolutions and wars necessary to establish purely national governments everywhere, and second, because in many countries where the abilities to govern are rare and of low quality, foreign governments are preferable to national ones.

These and many other utopias originate from the error [521] we previously identified: the belief that the constitution of governments, unlike that of other enterprises, does not fall under the jurisdiction of political economy, leading to the mistaken assumption that the solution to the problem of good government must be sought elsewhere. The disastrous failure of all attempts to improve public services—both in terms of their production and distribution—without considering the economic laws governing the production and distribution of all other services is proof enough, we believe, that it was a mistake to place governments in an area beyond the reach of political economy. As the science of utility, political economy alone is competent to determine the conditions under which all enterprises should be established, whether they are monopolized by governments or left to private enterprise.

From the moment political economy is restored to this essential part of its domain, without being hindered any longer by an excessive reverence for the powers that fear in some and pride in others had deified, the solution to the problem of a useful government becomes not only possible but even easy. It is enough to examine, first, whether the enterprises undertaken by government are constituted in accordance with the economic laws that govern the establishment of all other enterprises, whatever their particular nature may be, and second, if not, how they might be made to so conform.

Just as there are physical laws and principles of mechanics that must be observed in the construction of buildings, there are economic laws that must be observed in the [522] establishment of enterprises. Thus, in order to produce in the most economical manner, every enterprise must be structured and operated in accordance with the principles of operational unity and the division of labor, natural limits, and competition. To distribute its products or services in the most just and therefore the most useful manner, every enterprise must also conform to the principles of specialization and free exchange. However, the enterprises of government, as they are currently structured and operated, fundamentally violate these natural laws of production and distribution of services.

I. Governments visibly [30] violate the laws of the unity of its operations and the division of labor. How do they appear to us, in fact? As colossal enterprises performing a multitude of functions and industries simultaneously. Not only do governments provide public security, but in most cases, they also provide education, subsidize religious worship and the arts, handle postal services, send telegraphic dispatches, construct and sometimes operate transportation routes, and intervene to varying degrees in other areas of human activity. How, then, could they effectively perform all these multiple functions? Suppose a company were established to simultaneously operate: (1) railways and steamships, (2) wool and cotton textile factories, (3) grocery stores, (4) theaters, etc. Even assuming that the government agreed to grant it corporate status (which the administration would never do, as it naively considers the principle of the unity of operations to be essential... for others), such a company would not find [523] a single subscriber. Why? Because, no matter how unfamiliar the general public may be with the admirable book The Wealth of Nations, they would refuse to invest their capital in a company pursuing a multitude of different and disparate objectives. Even without formal economic knowledge, common sense, supported by everyday experience, would demonstrate that no enterprise in any field of human activity can “chase several hares at once” effectively. Even if the various industries involved were profitable separately, their unnatural combination would make them unprofitable. What, then, is a government if not a vast enterprise engaging in multiple, disparate industries and functions? From the perspective of the laws of operational unity and the division of labor, a government that undertakes security, education, postal and telegraphic services, railway construction and operation, minting coins, etc., is nothing less than a veritable monster.

II. Governments also violate the law of natural limits. As we previously noted (Volume I, Fifth Lesson: The Foundations of Production), every enterprise has its limits within which it can operate most efficiently. If it exceeds or falls short of these limits, its production becomes less economical. However, governments have never observed this law. Throughout history, they have continually sought to expand the domain subjected to their monopoly, and “universal monarchy” has remained the ideal of statesmen, if not of economists. In any case, the size of states has been determined by the accidents of war or dynastic alliances rather than by considerations drawn from the study of the laws of utility. [524] How, moreover, could governments that engage in multiple industries and functions conform to the law of natural limits? Each industry has its own, and a limit that is useful for the production of security ceases to be useful for the production of education. Given this, a government obviously cannot adhere to a law that would impose as many different limits as there are industries or functions it undertakes.

III. Governments violate the law of competition. In this regard, however, their structure is not uniform. For certain public services—security, the carrying of letters, and the minting of coins, for example—they completely prohibit competition within their domain. For others, such as education, charity, and the transportation of people and goods, they allow competition to a greater or lesser extent, though almost always under highly unequal conditions. In education, for example, they systematically operate at a loss, covering the deficits of their institutions with taxpayer money, including contributions from their own competitors. In charity, they refuse to authorize the establishment of private institutions in the form of perpetual societies enjoying full property rights, as public charity institutions do. No public service, in short, is produced and distributed under conditions of full competition—that is, by allowing entirely free entry to rival enterprises and by requiring them to cover the costs of their production, along with the ordinary remuneration of the capital invested in them. Since the industries monopolized by governments can thus persist without covering their costs of production, [525] they do not need, like competitive enterprises, to continually improve their methods and procedures. As a result, they are less driven to meet this need, which is not a vital necessity for them, and they consequently lag behind other branches of social activity.

IV. Finally, in the distribution of their services, governments violate the principles of specialization and free exchange.

In competitive industries, these two principles are rigorously observed. On the one hand, each consumer specifically requests the type of product or service they need, in the quantities and qualities that best suit their use, and these products or services are provided accordingly. On the other hand, consumers freely negotiate their prices and payment terms. In public services, however, exchange is collective and obligatory, rather than specialized and free. The government makes its services available to the entire community of consumers who are subject to its monopoly, and they are required to accept them as they are, without being able to negotiate prices and payment terms individually—unless they can do without them, and even then, they are often still required to pay their share. The total value of the services provided by the government is aggregated to form public expenditure. The sum required to cover this expenditure is also aggregated and collected from the entire community of consumers according to a distribution formula that is more or less arbitrary. If, as is usually the case, this sum is insufficient, the government covers the deficit through borrowing, [526] thus shifting part of the cost of current services onto future generations.

Due to this disregard for the fundamental principles governing the efficient structure of enterprises, public services remain in a state of glaring inferiority compared to private services. This disparity would be even more evident if governments did not impose anti-economic regulations on the branches of work they have not monopolized, preventing them from structuring themselves in the most useful forms and limits. For example, they prohibit most enterprises from establishing themselves as joint-stock companies, prevent all from being founded for an unlimited duration, and consequently, forbid them from issuing perpetual bonds. By hindering the efficient development of private enterprises, these restrictions and prohibitions uniformly serve to reduce the difference, in varying degrees, between them and the enterprises that governments have allocated to themselves as a monopoly.

Nevertheless, this difference remains enormous, whether viewed from the perspective of production or the efficient distribution of services.

I. Regarding production, the disregard for the principles of operational unity, the division of labor, natural limits, and competition inevitably results in raising the cost of public services while lowering their quality. While all products and services of competitive industries are continually supplied in greater abundance, with better quality and at lower prices, government services remain inadequate, crude, and expensive. However, as the population grows [527] and its resources increase, thanks to the rising productivity of industries structured and operated according to economic laws, the needs which public services are supposed to meet demand to be met in a more more extensive and refined manner. If it concerns security, it must necessarily be more complete and diversified in a wealthy and civilized society, where the properties requiring protection have multiplied and become infinitely more complex, than in a poor and barbaric society. If it concerns education, originally, the amount of knowledge each generation had to pass on to the next was small and limited in scope; moreover, this knowledge, beyond the elementary skills of manual trades, was needed only by the small class which governed society. Thus, to meet the needs of this limited number of consumers of education, a few schools were sufficient, in which all the known sciences were made accessible, just as all the products of nascent industry were gathered in the village shop. But as humanity’s intellectual and moral capital has grown through the work of successive generations, and as the need for knowledge required for wealth creation or to govern it has been felt by a larger class, it has become necessary to multiply and diversify the institutions of education. Today, at least in societies where self-government prevails, acquiring a certain amount of knowledge has become a universal need. Yet who would dare state that this need is adequately met? Let us compare the expansion and progress of industries that meet far less essential needs, [528] but which have entered the domain of competition over the past half-century, to the insufficient expansion and slow progress of education, which is monopolized everywhere, to a greater or lesser degree, by governmentalism. [31] Of all the products (made), human beings are the ones which are the least well-made today: if we succeed adequately instilling in them the art of operating machines, how little, by contrast, has the art of governing themselves advanced and become widespread! Yet what good is it to multiply and improve products if people do not know how to use them properly? If they use the increasing resources and power made available to them by the progress of industry only to indulge in mind-numbing vices or to destroy each other in savage conflicts? Is not this lag in the industry that shapes human beings by teaching them the principles of self government—of all arts, the most difficult and the most necessary—a social harm that will only become more severe? The same observation applies to other industries monopolized by governments: all lag behind competitive industries, and as society grows in number, wealth, and power, it suffers increasingly from this delay in some of the branches of its organization which are the most vital and most necessary (to it).

II. From the perspective of the useful distribution of services, the disregard for the principles of specialization and free exchange causes even greater harm, as it inevitably results in an unequal distribution of public services and the costs of their production. It even allows part of the cost of services provided to the current generation to be passed on to future generations. [529] On the one hand, no one can determine their exact share in the distribution of public services or their contribution to the costs. However, it is safe to say that the poorest classes, being the least influential in the state, receive the smallest proportion of public services while bearing the largest share of the cost. On the other hand, total government revenues, regardless of their source, rarely suffice to cover total expenditures. Governments are regularly forced to borrow to cover the ever-growing deficits of the branches of work they have monopolized. At present, their combined debts (excluding those of provincial, cantonal, or municipal governments) exceed 60 billion, and they increase year after year. [32] What does this mean? It means that part of the cost of producing public services is being shifted onto future generations instead of being paid bon fide (in good faith) by [530] the generation that consumed these services. Shouldn't this immoral ease in shifting part of today’s consumption costs onto the future inevitably lead governments to constantly increase their spending? Imagine what would happen if a similar practice were possible in private consumption: what debts one could accumulate with one’s grocer, tailor, or shoemaker if one could, under a commonly accepted practice, push the obligation to pay onto "future generations"! One of two things will happen: either future generations will one day collapse under the weight of these accumulated debts, or they will refuse, as is their right, to pay them—in other words, they will default.

Thus, due to their anti-economic structure, governments have become, in the forceful words of J.-B. Say, "the ulcers of society." [33] As population and wealth increase thanks to the progressive development [531] of competitive industries, an ever-growing mass of productive energy is extracted from society through the suction pump of taxation and borrowing, to cover the costs of producing public services—or, more accurately, to maintain and enrich effortlessly the particular class that holds the monopoly on the production of these services. Not only do governments charge increasingly higher prices for the essential functions they monopolize, but they also engage, on an ever-greater scale, in harmful enterprises such as wars—at a time when war, having lost its original raison d'être, has become the most barbaric and horrible of anachronisms. [34]

What is the cure for this ulcer that devours the vital forces of society as progress brings them forth?

If, as we have sought to demonstrate, the problem arises from the anti-economic constitution of governments, the solution is obviously to make this structure conform to the fundamental principles it disregards—in other words, to make it economical. To achieve this, first, governments must be relieved of all the functions that have been annexed to their natural role as producers of security, by returning education, religion, issuing money, transportation, etc., to the domain of private activity. Secondly, governments, like all other enterprises, must be subjected to the law of competition.

Already, the theoretical case for simplifying governmental functions has been won, even if it has not yet [532] been implemented in practice. [35] In contrast, the idea of subjecting governments to competition is still widely regarded as utopian. [36] But in this respect, reality may be outpacing theory. The "right of secession," which is gradually making its way in the world, will inevitably lead to the establishment of [37] "la liberté de government" (the liberty of government). The day this right is fully recognized and applied, political competition will complement competition in agriculture, industry, and commerce.

No doubt, this progress will be slow to materialize. But that is the nature of all progress. When one considers the mass of vested interests and prejudices that stand in the way, one might despair of ever seeing it realized. Let us instead listen to what [533] Adam Smith said in the last century about free trade: [38]

To expect, indeed, that the freedom of trade should ever be entirely restored in Great Britain, is as absurd as to expect that an Oceana or Utopea should ever be established in it. Not only the prejudices of the publick, but what is much more unconquerable, the private interests of many individuals irresistably oppose it. Were the [II-55] officers of the army to oppose with the same zeal and unanimity any reduction in the number of forces, with which master manufacturers set themselves against every law that is likely to increase the number of their rivals in the home market, were the former to animate their soldiers in the same manner as the latter enflame their workmen to attack with violence and outrage the proposers of any such regulation, to attempt to reduce the army would be as dangerous as it has now become to attempt to diminish in any respect the monopoly which our manufacturers have obtained against us. This monopoly has so much increased the number of some particular tribes of them, that, like an overgrown standing army, they have become formidable to the government, and upon many occasions intimidate the legislature. The member of parliament who supports every proposal for strongthening this monopoly, is sure to acquire not only the reputation of understanding trade, but great popularity and influence with an order of men whose numbers and wealth render them of great importance. If he opposes them, on the contrary, and still more if he has authority enough to be able to thwart them, neither the most acknowledged probity, nor the highest rank, nor the greatest publick services can protect him from the most infamous abuse and detraction, from personal insults, nor sometimes from real danger, arising from the insolent outrage of furious and disappointed monopolists.

[534]

Nevertheless, free trade eventually triumphed over the “furious monopolists” mentioned by the father of political economy, and one can now, without indulging in utopian dreams, hope that within a century, the protectionist system will exist only as a bad memory in the minds of men. Why, then, should political monopolies not disappear in turn, just as industrial and commercial monopolies are in the process of vanishing? If they wield formidable power, the interests they harm are also growing daily in number and strength. Their final hour will therefore eventually strike, and economic Unity will be established in the phase of competition just as it was in the preceding phases of community and monopoly. Then, the production and distribution of services, finally fully subject to the government of economic laws across all branches of human activity, will be able to operate in the most useful manner.

Endnotes↩

[1] Molinari uses the term "la tutelle" (tutellage or guardianship). For a more detailed discussion of his idea of "la tutelle" see chapter XI "Tutelle et al Liberté" in Gustave de Molinari, L’évolution politique et la Révolution (Paris: C. Reinwald, 1884), pp. 424-85. Online.

[2] Molinari first put forward the idea of "the production of security" in a article published in early 1849: Gustave de Molinari, "De la production de la sécurité," in Journal des Économistes, Vol. XXII, no. 95, 15 February, 1849), pp. 277-90 Online in French and my translation Online. He expanded on this in Soirée 11 in his book published later that year: Gustave de Molinari, Les Soirées de la rue Saint-Lazare; entretiens sur les lois économiques et défense de la propriété (Paris: Guillaumin, 1849), Soirée 11, pp. 303-37. Online in French; and my translation Online.

[3] Molinari uses the word "les nuisances" which means a nuisance or harms, perhaps in a legal sense as in "tort". He also uses the words "les maux" which were translate as "harms" or "ills" or sometimes "problems".

[4] "Ulcer" is an important term for Molinari. See my essay on "Ulcerous, Leprous, and Tax-Eating Government".

[5] He uses the English term "self government" throughout this chapter.

[6] Molinari has a theory of class very similar to that developed by Bastiat. In his lecture on "Revolutions and Despotism considered from the Perspective of Material Interests" (1852) he develops the idea of society being divided into two antagonistic classes "les mangeurs de taxes" (tax eaters) who exploit and live off "les payeurs de taxes" (the payers of taxes). Online French and my translation Online. In this chapter he talks about "la classe gouvernante" (the governing or ruling class) (4 instances), "la classe exploitée) (the exploited class) (1 instance), and la classe conquérante) (the conquering class) (1 instance). See my essay on "Frédéric Bastiat on Plunder, Class, and the State" (2021) abc Online.

[7] Molinari says here "la tutelle sociale" (social guardianship).

[8] Uses word "la discordance" (discord, disharmony). He knew very well his friend and colleague Frédéric Bastiat's' use of the idea of "harmony" and "disharmony." See my essay on "Bastiat's Theory of Harmony and Disharmony: An Intellectual History" (2020) Online.

[9] Molinari later developed his ideas about the economic and political evolution of societies through small scale production to large scale production, and though monopoly to full competition in a pair of books published in 1880 and 1884 after first appearing as articles in the Journal des Économistes (JDE): see Gustave de Molinari, L’évolution économique du XIXe siècle: théorie du progrès (Paris: C. Reinwald 1880). Online, and Gustave de Molinari, L’évolution politique et la Révolution (Paris: C. Reinwald, 1884). Online. His most detailed discussion of what the "government of the future" would look like can be found in chapter X. "Les gouvernements de l'avenir" in L’évolution politique et la Révolution, pp. 351-423. Online in French and my translation Online.

[10] He says "les hommes de guerre" (men of war).

[11] Molinari uses two words "le regime" and "le système" to describe how various structures are organised in a society. We have maintained his distinction in this translation.

[12] Molinari wrote the entry on "Usury" for the Dictionnaire de l’Économie Politique ed. Coquelin (1852-53), T.2, pp. 790-95. I have collected and translated Molinari's 33 contributions as The Collected Articles from the Dictionnaire de l'Économie politique (1852-53) (2025): Online in French; my translation Online.

[13] Molinari distinguishes between "la corporation" and "l'entreprise". By "corporation" he meant the privileged bodies of the old regime who were granted privileges and monopolies by the state to organise and carry out certain trades and business activities, and to exclude people who were not members from carrying out these trades or businesses. We use 'corporation" in this sense in the translation. In contract to these bodies, Molinari talks about "enterprises" which today we would call private businesses, firms, or "corporations". To describe these latter groups in this translation we use the term "enterprise" or "business."

[14] Molinari uses the term the "maximum" several time which is a reference to the decree of 29 September 1793 which introduced the notorious “Maximum” or price control legislation to control the rapidly rising prices of things like bread and other staples during the early years of the French revolution.

[15] Molinari continues to use the term "corporations" here, whereas we think "guilds" would be the better translation in this sentence.

[16] Molinari uses the word "compangnonnage".

[17] It is an important part of Molinari's theory that he thought that there was a "market" for every "industry" in which there were "les producteurs" (producers) of the good or service, "les consommateurs" (consumers) of the good or service, "les entrepreneurs" (entrepreneurs) who would organise the production and sale of these goods and services, and compete with other producers to satisfy the demands of the consumers. Here he talks about "les consommateurs des services gouvernementaux" (the consumers of government services). See my essay on "Markets in Everything and Entrepreneurs for Everything".

[18] Molinari wrote the entry on "Propriété littéraire et artistique" (Literary and artistic Property) for the DEP, T. 2, pp. 473-78. Online in French and my translation Online.

[19] He says here "loi des quantités et des prix" (the law of quantities and prices). His book Les Soirées (1849) had the subtitle "discussions on economic laws and a defense of private property". He wrote an entire book some 40 years later called Les Lois naturelles de l'économie politique (The Natural Laws of Political Economy) (1887) where he explores this greater detail. His list included 6 such natural laws. See my essay on "The Natural Laws of Political Economy".

[20] He says "des agents productifs" (productive factors) as well s "les instruments" (tools" and "les matériaux" (material), but it is not clear what these "agents" are.

[21] Molinari here uses the word "tuteur" (guardian or tutor).

[22] I believe the adjective "antiéconomique" is a neologism invented by Molinari. He uses it (7 times in the chapter) in the sense of being much more than just "uneconomic" but also being antithetical to the principles of the science of political economy. In other words being a violation of those principles.

[23] Molinari says "un bazar colossal" (a huge bazare). The idea that society was "great market" or "bazaar" was used by Destutt de Tracy, Traité d'économie politique (1823), chapter 1 "On Society"; and later by Bastiat. See my essay on "Society is one Great Market or Bazaar".

[24] The concept of "l'épicier monopoleur" (the monopolist grocer) was one Molinari would return to on several occasions. As he found the opposition to his idea of the competitive and private "production of security" to be quite strong within the Political Economy Society he used the story of the monopolist grocer as a lever to try to persuade his colleagues. If they were against the idea of a grocer having a monopoly for the very same reasons they should also be against the idea of there being a "government monopoly" in the provision of others services, such as security. He also called this "notre hypothèse" (our hypothesis) as a way of gently introducing the concept to his readers. See my papers "Was Molinari a true Anarcho-Capitalist?: An Intellectual History of the Private and Competitive Production of Security" (2019) Online; and "The Story of the Monopolist Groce"."

[25] Here Molinari says "les conditions de production moins économiques" where the translation "uneconomic" (less economic) is preferred.

[26] On "notre hypothèse" see the note above.

[27] Molinari uses feudal word "inféodé" which suggests a feudal like grant of monopoly of ownership or use.

[28] Molinari deals with the "problem of nationalities in Les Soirées, S11, pp. 335-37 Online in French and my translation Online; and his entry on "Nations" in DEP (1853), T.2, pp. 259-62 Online in French and my translation Online.

[29] He uses the word "natif" (native or native born) which we translate as members of a national group living within a larger perhaps multi-national political entity such as the Austro=Hungarian empire.

[30] Molinari uses uses a religious term here "pèche" (pécher, or to sin). Thus, people who ignore the laws of political economy are "sinning" against or "violating" them.

[31] Molinari is using another neologism here "le gouvernementalisme". It was probably coined by Bastiat who used the word in the last paragraph of his pamphlet on The Law (June 1850), p. 80 Online in French and in English (CW2, p. 146).

[32] (Note 1 by Molinari.) The nominal capital of public debts amounted in 1859, according to the Yearbook of Mr. J. E. Horn, to the following sums: United States, 241.1 million francs; Austria, 6,850; Baden, 186.5; Bavaria, 684.1; Belgium, 599.7; Brazil, 400; Denmark, 313.3; Spain, 3,658.7; France, 9,113.3; Great Britain, 20,093.3; Greece, 17; Hanover, 170; Italy, 2,500; Netherlands, 2,354.1; Portugal, 501.8; Prussia, 1,200; Russia, 6,480; Royal Saxony, 227.5; Sweden and Norway, 452; Turkey, 885; finally, Württemberg, 119.3; making a total of fifty-one billion one hundred fifty-three million three hundred thousand francs. (Annuaire international du crédit public pour 1860, by J. E. Horn, p. 292.) Since this record was made, the debt of the United States alone has increased by nearly ten billion.

[33] (Note 2 by Molinari.) “If, as a result of the extravagances into which we are led by abusive and complicated political machines,” says J. B. Say, “the system of excessive taxation prevails, and especially if it spreads, extends, and consolidates, there is reason to fear that it may plunge into barbarism the very nations whose industry amazes us most; there is reason to fear that these nations will become vast galleys, where the indigent class—that is, the majority—will increasingly look with envy toward the condition of the savage... the savage who, to be sure, is not well provided for, neither he nor his family, but who at least is not required, through perpetual effort, to sustain enormous public expenditures, from which the public does not benefit or which even turn to its detriment.” (J. B. Say, Traité d'économie politique, Book III, Chapter X.)

[34] (Note 3 by Molinari.) See on this subject the Dictionnaire de l'économie politique, article Peace, and The Abbé de Saint-Pierre, His Life and Works. Introduction.

[35] (Note 4 by Molinari.) Our two previous works, Les Soirées de la rue Saint-Lazare and Questions d'économie politique et de droit public, to which we take the liberty of referring our readers, are almost entirely devoted to demonstrating the harm caused by government intervention. We have also founded, for the same purpose, the journal L'Économiste belge.

[36] (Note 5 by Molinari.) Nevertheless, we believe we must boldly claim priority for this so-called chimera. See Questions d'économie politique et de droit public. La liberté du gouvernement. Vol. II, p. 245, and Les Soirées de la rue Saint-Lazare, Eleventh Evening, p. 303. For further developments, consult L'Économiste belge, "Le Sentiment et l'intérêt en matière de nationalité", issue of May 24, 1862; polemics with Mr. Hyac. Deheselle on the same subject, issues of June 4 and 21, July 5 and 19; "Le Principe du sécessionisme", August 30; "Lettres à un Russe sur l'établissement d'une constitution en Russie", August 2 and 30, September 19, 1862; "La Crise américaine," January 17, 1863; "Un nouveau Crédit Mobilier," February 14; "Une Solution pacifique de la question polonaise", May 9, etc., etc.

[37] Molinari uses the phrase "la liberté de government" (the liberty of government) which is similar to the phrase "la liberté de l'échange" (free trade), so "free or competing government".

[38] (Note 6 by Molinari.) Adam Smith, The Wealth of Nations, Book IV, Chapter II. {Original English version: Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations. By Adam Smith, LL.D. and F.R.S. Formerly Professor of Moral Philosophy in the University of Glasgow. In Two Volumes. (London: Printed for W. Strahan; and T. Cadell, in The Strand, MDCCLXXVI (1776)). Online.