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Caplan on Public Goods

1. In section 3.3 of “Why I Am Not an Austrian Economist” Caplan defends the concept of public goods, quoting Rothbard and rebutting him. To be specific, let us put the quote in context and see what Rothbard was talking about.
The call for state subsidization of external economy invest-
ments amounts to a third line of attack on the free market, i.e.,

that B, the potential beneficiaries, be forced to subsidize the benefactors
A, so that the latter will produce the former’s benefits. 

This third line is the favorite argument of economists for such proposals as
government-aided dams or reclamations (recipients taxed to
pay for their benefits) or compulsory schooling (the taxpayers
will eventually benefit from others’ education), etc. The recipi-
ents are … being “saved” from a situation 

in which they would not have obtained certain ben-
efits. Since they would not have paid for them, it is difficult to
understand exactly what they are being saved from.

In other words, the govt decides “We know you people here want a dam, but you do not want to pay for it. So we will take your money by force, give it to a dam builder, and now you lucky people will finally have the dam you so badly wanted.”

Rothbard explains that this not a benefit to the people being forced to pay for it. Caplan quotes him:
As for the recipients, they are being forced by the State to pay for benefits that they otherwise would not have purchased. How can we say that they “benefit”? A standard reply is that the recipients “could not” have obtained the benefit even if they wanted to buy it voluntarily. The first problem here is by what mysterious process the critics know that the recipients would have liked to purchase the “benefit.” Our only way of knowing the content of preference scales is to see them revealed in concrete choices. Since the choice concretely was not to buy the benefit, there is no justification for outsiders to assert that B’s preference scale was “really” different from what was revealed in his actions.

Caplan thinks this is a ridiculous argument. He explains why:
While the argument follows from Rothbard’s utility theory, that utility theory, as previous sections argued, is seriously in error.
Oh? And what serious error is that?

 To reiterate, contra Rothbard preferences can exist without being acted upon.
Oh, I see. Rothbard is saying that if the people don’t try and buy a dam without being forced to, it means they don’t want one. And Caplan is saying, “Oh, yes they do. Maybe.”

Let us note that Caplan himself is pretty wishy washy about this point, as we have shown in this blog. Sometimes he attributes to Rothbard the thesis that preferences unacted upon do not exist; other times that they exist but we do not know what they are.

What did Rothbard really mean? All we have to do is read what he wrote: Our only way of knowing the content of preference scales is to see them revealed in concrete choices. No two ways about it, he is saying that they exist. Moreover, he continues to say that we do know them: Since the choice concretely was not to buy the benefit, there is no justification for outsiders to assert that B’s preference scale was “really” different from what was revealed in his actions. In other words, if they wanted it, they would have bought it. Not buying it means they didn’t want it. Simple common sense.

2. Caplan then says something a bit mysterious:
Rothbard was also correct to wonder why actors refrain from bargaining to solve the public goods problem;
The mystery is, where did Rothbard mention bargaining? He didn’t. Where did he even admit that there is a public goods problem in the first place that has to be “solved”? He didn’t. Reading the chapter in Man Economy and State from which Caplan took the above quote shows Rothbard denied there is such a problem. In fact Caplan admits later on that Rothbard has an “a priori rejection of the very idea of public goods.”
Bottom line, fee fi fo fum, I smell sophistry.
 
More on this section in a later blog.

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