1.18 The Effect of Productive Efforts of Public Authority
In some instances, government engages directly in productive action rather than subsidize private producers. That is, it undertakes to manufacture a good that it provides at no fee to citizens or sells at a low price, effectively subsidizing its own production.
To call such activity productive is typically inaccurate - it creates or furnishes some item, but there is no production of value unless the price of its output covers or exceeds the cost of its production. For a private individual to sell a good for less than it cost him to produce it is ruinous of his private fortune; for a government to do the same is ruinous to the public welfare, and the difference is visited on taxpayers.
It is pointless to pretend that the employees of government have made a profit. Their wages do not represent a share of the value they have created, but are alms paid from tax revenue for participating in an activity that does not generate, and often destroys, value.
Say considers a few manufacturing operations that furnish tapestries and porcelain to the government of France. In these instances, the goods are not for sale but for consumption. Even so, the cost of producing them for itself far exceeds what it would have cost to purchase them from private producers, and it is a source of perpetual waste.
Aside of the waste to the taxpayer, when government acts as a manufacturer it deprives the same opportunity to private manufacturers. The price of items is set artificially low, as the government does not need generate revenue to cover the costs of production, as it can cover any loss with tax revenue. For the same reason, it has little concern over efficiency in its operations or waste of overproduction.
There is some substance to the argument that the government must necessarily manufacture certain goods that are of military use: there is no civilian market for warships, cannons, and the like, and depending on private producers would be a vulnerability in times of conflict. However, he notes that the government of France purchases muskets, ammunition, gunpowder, wagons, and many other military goods "with benefit" from private sources - so the argument it must make some things and not others seems untenable.
An aside: government must be diligent in its dealings with private manufacturers to obtain goods of any kind, as it is rife with opportunities for fraud. To demand a price that does not cover the cost of production is an injustice, the equivalent of seizing the private property of the producer, but to spend wastefully is no less egregious, as taxes are already seized from the private property of citizens. Hence it must be scrupulous in its bargaining to obtain a fair price. Government's role as a customer is significant, as taxes collected in coin are all spent on something.
One might argue that government cannot find a private supplier of roads, canals, and harbors - but in producing these facilities, it engages with many suppliers of material and labor. Even the employees who perform regular duties for the government must be compensated fairly, neither too much nor too little, for their services.
A digression on the provision of public goods, and some specific items which government may rightly supply:
- Roads, canals, and harbors delivers a benefit to all of society - the producers and traders whose goods travel on these channels, their employees and suppliers, the consumers who benefit from the availability of the goods in their markets.
- Any facility that endeavors to disseminate or expand upon human knowledge is ultimately of benefit to all citizens
- The defense of a nation is also essential to the welfare of its people. Citizens threatened by foreign armies or domestic bandits make little progress and often struggle merely to subsist.
He then digresses further to the use of military force as a means to obtain wealth by seizing the assets of foreign nations. He does not advocate this, because it is appropriation without production and it is much more favorable in the long run to trade with other nations than to loot them - but he cannot deny that the welfare of citizens of the Roman empire benefitted much from by raiding their primitive barbarian neighbors, though the net result was to keep them primitive and barbaric.