With the almost constant statist apologetics we hear from many government and academic economists1 it is hard to believe that the discipline of economics was once a thorn in the side of the state and its political elite. So commonplace are fallacious economic arguments advocating state control that it sometimes seems that refutation of all of these arguments has become a case of cutting the heads off the Hydra—a tiring and fruitless endeavor.

But if economics is to become an instrument of freedom and prosperity instead of an instrument of statism,2 then there are certain fundamental fallacies that must be continually challenged and discredited. Chief among these is the persistent non sequitur from externality to coercion—that is, the bogus conclusion that coercion is a proper means to solve problems involving economic externalities.

One of the most blatant examples of this non sequitur occurs in discussions of the "free rider problem" and the alleged solution of government provision of so-called "public goods."3 This is a particularly insidious economic theory that bears a great deal of the responsibility of derailing economics into the ditch of statism.

The "Problem" of Free Riding

The "free rider problem" occurs in situations in which a person derives a "positive externality" from the actions of another—that is, a benefit that he did not pay for. This occurs in situations where the beneficial effect of an action is "nonexcludable," meaning that the benefits cannot be withheld from people who had nothing to do with the action.

For example, a beekeeper may keep bees solely as a means of producing honey. However, an ancillary effect of this activity—an externality—is that the bees will pollinate flowers in surrounding properties, benefiting the owners of those properties at no cost to them.4 Nor is there any practical means by which the beekeeper can produce his honey without conferring this benefit on his neighbors. Thus, the...

Tap to copy the Short Url to this post:
All Business News on a Single Page. Join for Free →