19. Road Privatization: Rejoinder to Mohring

The thought many people will have when first confronted with the notion that roads, highways and streets ought to be privatized is likely that yes, it might be a good idea for the government to contract out to business firms some minor tasks: perhaps salting or bulldozing in snow conditions, maybe cleaning, possibly even pot hole repair or paving. Suppose they were convinced that the advocate of such an initiative meant, not merely contracting out a few such functions, but radically privatizing: allowing private enterprise to conduct, not some, but all functions related to vehicular traffic; that is, turning over responsibility for vehicular traffic entirely to the marketplace; allowing entrepreneurs to assemble the land upon which new thoroughfares were to be built; to manage and charge from them and, gulp!, earn profits thereby. Then, presumably the reaction of most people would be to question the very sanity of anyone making such an outlandish proposal.

There is a wealth of literature attesting to the fact that, historically, many of the first roads were privately built turnpikes; so that there is no reason, at least in principle, why such should not be the case even in modern times. Many of these studies underline the claim that roads provided by the government kill thousands of people per year; that these deaths are attributable, not to factors such as speeding, weather conditions, driving while intoxicated, vehicle malfunction or driver error, which are not under the control of the bureaucrats charged with running the roads, but rather to the lack of managerial skill in so doing.

Then there is the issue of traffic congestion: it is bad, and it is getting worse. The average motorist¹ spent 26 more hours per year in bumper-to-bumper traffic in 2000 than he did in 1990. Things have come to such a pass that the word “gridlock” has now entered our vocabulary. And this, too, stems not from any intrinsic source, but from statist mismanagement of our roadway system. For one thing, prices are rarely charged for road usage; but congestion is no more than an excess of demand over supply. At a zero price, it is no surprise that shortages should erupt. For another, on the rare occasions that prices are charged, they are not market clearing, peak-load prices, which would tend to iron out rush hour demands. On the contrary, commuters,² who aggravate the peaks and troughs, are charged less than other motorists with more flexible schedules.³

The present chapter, however, is not directly concerned with congestion and traffic deaths as being part of the case for privatization of traffic conduits. They are mentioned only by way of introduction. Our present burden is to overcome difficulties in privatizing roads, by dealing with objections and transition problems.

OBJECTIONS

SIMILARITY?

The main objection to highway privatization we will consider is articulated in “Congested Roads” by Herbert Mohring. This article is a frontal attack on the idea of road privatization. This is somewhat more than passing curious, in that Mohring begins with an avowal that there is no real intrinsic difference between road transportation and pretty much anything else:

Economists’ basic theories of price and value—the tools they use to determine the optimal input combinations and output levels for a dam, a steel mill, or an orange grove, or to place a value on any of them—can, without fundamental alteration, provide the same services for transportation activities.⁴

And again:

If the standard tools of microeconomics can be used to understand the supply and demand for transport, then might it not be possible to rely on market processes—the method on which we rely to provide most commodities—to provide transport services?⁵

Even in terms of congestion, he analogizes road services along the lines of that provided by the department store and the cinema:

The wait for service in a department store is typically substantially longer during the week before Christmas than in late January. As for quality of product, as the number of people attending a movie performance increases, the odds of finding a seat with an unencumbered view of the screen diminishes. And, of course, in driving on urban roads, more congestion means more time consuming and, for most, less pleasant trips.⁶

However, despite what this author can only see as superficial resemblances, roads are very different for him than practically all other products; in his view, the latter can be provided by the private market place for a profit, while the former cannot. One reason for this is the following:

Neither widget buyers nor widget⁷ sellers ever see the backward-bending part of the AVC curve . . . because the difference between SRMC and AVC⁸ is built into the price they pay. Not so for road users: in deciding whether and when to make trips, most travelers take into account the costs congestion imposes on them. Few worry about the costs their trips impose on others by slowing them down. The unrecognized external cost or “externality” of travel some times forces road users into the backward-bending part of AVC.⁹

MARKET FAILURE

This is par for the course for traditional neoclassical economic analysis, according to which there are all sorts of “market failures” out there, and “externalities” are one such. In contrast, from the Austrian economic perspective¹⁰ from which the present author writes, there is no such thing as market failure, and “externalities”¹¹ of the sort mentioned by Mohring are but an example of illogical analysis.

The main reason, in this case, that Mohring’s charge against free enterprise fails is that there simply is no “externality.” Rather, there is an “internality,” which he does not recognize as such. Road users, under present, socialistic,¹² institutional arrangements, need not take into account the extra waiting time they impose on other motorists because they are not charged a price that incorporates this imposition. Rather, the price they face is precisely the same whether at peak-load highway use times (e.g., rush hours) or at any other time of the day. Typically, this price is zero. In the case of positive prices, as for some limited-access highways, tunnels and bridges, it still does not vary at all in response to congestion.¹³

In fact, Mohring contradicts himself on this issue. Remember, he is saying that there is something unique about road services, compared to all other goods, e.g., “widgets,” such that the former is somehow guilty of this market failure of externalities, wherein motorists do not take into account the time costs they impose on others of their ilk, while this malfunction, somehow, does not take place in the latter case. But he is also on record as stating: “The wait for service in a department store is typically substantially longer during the week before Christmas than in late January.”¹⁴ Why is this? That is, why is it that the market failure of externalities, wherein buyers do not consider the time costs of others, does not afflict, also, department store customers? The reason is simple. Department stores are privately owned.¹⁵ Thus, there is economic incentive for their proprietors to act rationally, lest they suffer losses and be forced into bankruptcy. By Mohring’s own admission, they do so; e.g., they charge higher prices “during the week before Christmas than in late January.” Thus, December shoppers are lead by Smith’s “invisible hand”¹⁶ to take into account the wishes of other customers, and to not impose, or at least to reduce the imposition they make on their scarce and valuable time.

In sum, there is no intrinsic difference in this regard between highway or street transit, and any other good (widget). If either is in the hands of private enterprise, pricing will gravitate toward a situation in which the customer’s time, as well as money, is taken into account. In contrast, if either is in the hands of government, pricing will not gravitate toward a situation in which the customer’s time, as well as money, is taken into account. Then, truly, there will be a “failure.” But it will be a government failure, not a market failure.¹⁷

PRICING

Next, Mohring launches into a defense of the case for pricing of road services. He unfortunately relies upon “a benevolent highway authority” as the linchpin of his analysis.¹⁸ But if the Public Choice school¹⁹ of thought has taught us anything, this is an unlikely scenario at best. He predicates his analysis, too, on the basis of sufficient information, without asking whether markets or statist bureaucracies are most likely to generate the requisite knowledge. Yet, if we have learned anything from the disarray of the Soviet experiment, it is that central planners cannot rely on anything like accurate assessments of economic reality.²⁰ In contrast, entrepreneurs sink or swim on the quality of the information they can generate. The market, weeding-out process ensures that those with better knowledge, ceteris paribus, will continually out perform and eventually bankrupt those with inferior data, thus tending to continually improve matters in this regard. Needless to say, this is a phenomenon lacking in governmental operation.

There is no question but that governmental pricing of highway services would be more efficient than its present policy of not charging at all. Certainly, pricing would do wonders in terms of alleviating traffic congestion. However, for the advocate of road privatization, this constitutes something of a vexing issue. Given that governmental ownership is an unmitigated evil, is it a step in the right direction, or in the wrong one, to render this evil more efficient, through pricing, in this case? Certainly, no advocate of the freedom philosophy could advocate a more efficiently run, Nazi concentration camp, e.g., one which would kill more innocent people per dollar spent. True, government managed roads are scarcely equivalent to a concentration camp. On the other hand, statist roads do constitute rather more than just a bit of a charnel house. Given that some 40,000 people perish on our nation’s highways each year, how much of this is attributable to government ownership? This is very difficult to discern.

GOVERNMENT RESPONSIBILITY?

Gabriel Roth states as follows:

Statistics compiled by the International Bridge, Tunnel and Turnpike Association (IBTTA) show the accident rate on roads operated by its members to be 0.6 deaths per 100 million vehicle-miles, compared to 0.9 deaths per 100 million vehicle-miles on the US interstate system, one of the safest non-commercial road systems in the world.²¹

Were we to extrapolate from this figure, we would conclude that privatization would reduce traffic fatalities from roughly 42,000 per year to two thirds of that, or to 28,000, a reduction of 14,000. In this calculation, we ascribe to government ownership one third of all such deaths, or those 14,000 per year. These are not Nazi type statistics, but they are far from insignificant.²² However, Roth adds the following to his letter: “Note that the IBTTA roads are toll roads, not necessarily privately-owned. Thus, attributing to government ownership one third of the death toll is an underestimate.”

Perhaps a better way to approximate government culpability in this regard is to utilize the “two to one” rule. That is, there is a plethora of evidence attesting to the fact that private enterprise is twice as efficient as its statist counterpart in providing services such as garbage collection, fire protection, postal delivery, etc.,e.g., private sanitation could remove two times more garbage per dollar spent as its public counterpart.²³ If we use this insight as the basis of our calculation for roadway deaths, then we can infer that, under privatization, only one half as many people need die, that is, 20,000, and the other half, or 20,000 would be saved. It is the latter figure, not merely 14,000, who are slaughtered due to governmental negligence in this calculation.

But this “two to one” literature underestimates the efficiency of private over public enterprise in two distinct ways; one, it does not take fully into account that the services are often merely “contracted out” by the government to the so called “private” enterprises. That is, these business firms are not at all stand alone members in good standing of the market. Rather, they have won government-rigged contracts, with all the inefficiency implied therein. Suppose, when this phenomenon becomes incorporated into the analysis, that the rule shifts from “two to one” to “three to one.” If so, than the pure market is not twice as efficient as the state, but thrice. If so, then the death toll per annum of 40,000 would decline not to 20,000, but rather to 10,000, with a saving of 30,000 lives. But even this figure is likely to be an underestimate of the true enormity of public ownership and management of highways, in that this literature, also, only imperfectly takes into account quality of service. Posit, then, that when we fully incorporate this phenomenon into our calculations, that the proper rule of thumb would be that markets are four times more efficient than bureaucrats. Then, the number of people slaughtered on our roads would be 8,000 per year, with a savings of 32,000 lives.²⁴

If so, this casts doubt on the goal of promoting greater governmental efficiency on the roadways, even under the assumption that our only goal was the utilitarian one of reducing fatalities. Yes, if they began peak-load pricing and engaging in other quasi-market activities, there might be a marginal decrease in the death toll. But this would inevitably come at the cost of putting off the day of complete privatization. There is no such thing as a “social” rate of time preference, on the basis of which we could unambiguously compare the present discounted value of a small number of lives saved, in the short run, with a more efficient government enterprise, versus a larger number of people safeguarded, later, under full privatization, so any exact calculation must remain speculative. However, this at least constitutes a reasonable argument against blithely assuming that the goal of social policy must necessarily be to marginally improve state highway operation.

There is also, in addition to utilitarian concerns, a matter of simple justice. Government simply has no business nationalizing an industry that for many years was run under private auspices. This smacks of the nationalization practices of the late and unlamented “evil empire” of the Soviet Union. To add insult to injury, the state manages highways on a coercive basis. With its compulsory tax levies on gasoline, it forces people to pay for road usage, whether they wish to do so or not. With its eminent domain powers, it seizes private property from their rightful owners.

EMINENT DOMAIN

Mohring states: “Assembling rights of way for . . . roads would be prohibitively expensive unless the state could be induced to use its powers of eminent domain on their behalf.”²⁵ There are several difficulties with this position. First of all, the state need not be “induced” to do any such thing. Rather, this is the very essence of government, to seize that which does not belong to it. The history of the state is the history of such theft.²⁶

Second, this bespeaks a level of economic unsophistication that is rather surprising, emanating as it does from a professor in that field. For, surely the true costs are higher, far higher, when government seizes property than when it purchases it; the costs are only hidden in the former case. Let us suppose that a given man would sell his land only for $100,000. The government comes along and expropriates it, giving him $10,000 for him, the figure that the bureaucrats compute as “fair market value.” Mohring, the “cost” of this land is only the $10,000 in out of pocket expenses for the state. But the true cost, the alternative cost, is the much higher figure of $100,000.

But what of the possible objection that this property owner “really” values his holdings at, say, $50,000, and is “jacking up” his price since someone wants to buy it for a road, and he can act the part of the “holdout?” Even if this is true, Mohring’s calculations are still amiss, albeit by not as much. In this scenario, Mohring still counts the costs of this part of the road assemblage at $10,000, whereas, by stipulation, the true figure is five times that (not tenfold, as it was in the previous scenario). This is still a whopping underestimate. But there is a more serious rejoinder to this objection: such figures are necessarily hidden from outside observers. The only person privy to these costs is the property owner himself. The government, Mohring, the present author, none of us knows the alternative or opportunity cost of this land apart from its owner. All of these numbers are made up, suitable for illustration purposes only. There is no warrant for saying that the property owner is acting the part of the “holdout.” All we outside observers know, all we can ever know, is that he demands, say, $100,000 for his land at the present point in time. We cannot know any such thing as that he would really sell his land for $50,000, or $10,000, or any other such figure, and is only “jacking up” his price to “unrealistic” levels in order to “take advantage” of the desperation on the demand side.

PERFECT COMPETITION

The next difficulty in which Mohring enmeshes himself is that he maintains that roads cannot be privatized because they do not meet the very stringent and irrelevant conditions of so called “perfect” competition: “Expressways are so large and have so much capacity that, in selling their services, private owners would not be subject to the sorts of market pressures that firms experience in the competitive markets of economic texts.”²⁷

And again:

In the markets that populate economics texts, Adam Smith’s invisible hand maximizes social benefits without government intervention. Would the many virtues of emulating textbook-competitive markets in pricing and developing roads make it desirable to turn over the duties of the Federal Highway Administration and state departments of transportation to free enterprise? Sadly [sic] to say, before such a step becomes optimal, problems must be solved that result from differences between the technology of roads and that which justifies laissez faire in dealing with the firms that populate textbook competitive markets.²⁸

There is so much wrong with this contention it is difficult to know where to start in refuting it. Beginning with a reductio ad absurdum might not be a bad way to address this claim. “Perfect competition” requires, among other things, completely homogeneous goods or services, thousands (or millions, depending upon which neoclassical economist is holding forth) of buyers and sellers, total complete and full information about every aspect of the good on all sides, no transactions costs, zero profits, equilibrium, etc. To say that no real world industry can meet these stringent conditions is a vast understatement. But that is just the point. If Mohring were to implement his requirement, there would be, there could be, no private industries at all. Every last economic activity known to man would either be owned and run by the government (e.g., the Soviet system) or “owned” privately²⁹ but managed or controlled by it (e.g., the fascist system).

The point is, “perfect competition” is a totally made up scenario, having nothing whatsoever to do with the real world; it is used by mainstream economists such as Mohring as a stick with which to beat up on real life business firms. Perfect competition functions in economics as would the ravings of a madman in criminology who insisted he would kill (or at least consider illegitimate) all people who were not eight feet tall and did not weigh less than one hundred pounds.

In contrast to this ersatz concept is the Austrian concept of real competition, rivalrous competition. Here, it is not necessary that everyone be all-knowing, nor that all products be homogeneous,³⁰ that there be an indefinitely large numbers of buyers and sellers such that none of them can have any effect on price,³¹ etc. All that is required is that there be no laws criminalizing entry into an industry. Then, there can be rivalrous competition. The Austrian is no “nose counter.” Mere large numbers, or their absence, neither ensure nor preclude competition in this sense. Microsoft is not a monopoly,³² nor was IBM before it, despite each of them accounting for a large share of the computer market in their respective eras. This is because entry is legal; anyone can start up a computer business whenever he wishes to do so. Nor does anything like competition prevail in the taxi industry, despite the fact that, in any given large city, there are literally tens of thousands of firms in this industry. This is because entry is precluded by law.

Nor can we acquiesce in the notion that mere technological considerations can “justify laissez-faire” or fail to do so. To agree with this premise is to ignore the normative-positive distinction. The only consideration that can justify laissez-faire or fail to do so are those pertaining to rights, or ontology.

CENTRAL PLANNING

Above, when we discussed Mohring’s views on eminent domain, we had occasion to remark upon his surprising unsophistication, for an economist, on this issue. This might be due to the fact that despite his graduate degree and his professional affiliations, he is more of a “transportation planner”³³ than he is dismal scientist. His article bespeaks almost ignorance of even the possibility that the highway industry might be privatized. He looks at the issue of roadway provision solely as a transportation planner, equivalent to the manner in which a Soviet central planner viewed the entire economy.

This author spends much time and effort in this regard. One of his conclusions is that:

As figure 1 suggests, the direct effect of congestion on tolls would have made the average road user worse off. Almost all would have paid more for the trips they continued to take and would no longer have taken some trips that formerly yielded net benefits. While all travelers would have benefited from faster trips, toll payments would have exceeded the value of these time savings for most. Only two small groups would have reaped net benefits from congestion pricing regardless of the uses to which revenues were put. There were then-current mass-transit users and very high-income auto travelers. Tolling would have induced some travelers to divert from auto to bus. . . . On the most congested roads, for auto users with incomes greater than about $80,000 a year, travel-time savings would have exceeded their toll costs. On less congested roads, only travelers with incomes well into the six-figure range would have had net benefits.³⁴

The clear implication of this is that it would be unwise, inefficient, and counterproductive to charge a price for road use.³⁵ But let us take a moment for common sense to prevail. If private owners would, on this account, be legally prohibited from charging a price for use of their property, this would just about spell the death knell for any privatization efforts. For all practical purposes, we would be stuck with present institutional arrangements, which, in addition to featuring bumper-to-bumper traffic, also constitute carnage for motorists. Another difficulty with Mohring’s analytic framework is that it “proves” far too much. If it is improper for street and highway owners to charge prices, and if department stores³⁶ resemble roadways in terms of congestion and peak-load demands for their services, by Mohring’s own admission, then the logical implication is that these amenities should not engage in pricing either.³⁷ But more: all, or at least virtually all, goods and services are cyclical in this regard. That is, no one buys much of anything, typically, on any weekday between 2:00 a.m. and 5:00 a.m., or on Christmas day. Congestion prices, then, would be improper for just about anything, under this line of “reasoning.” But there is only one institution that need not charge prices for its wares, since it can finance them through compulsion (e.g., taxation), and that, of course, is government. Mohring’s analysis, then, if it “suggests” anything, leads right back to the Sovietization of (virtually) the entire economy, something the civilized world has been attempting to escape from lo these many years, and something, since at least the fall of the “evil empire” in 1989, one would have thought all scholars would eschew. Not so, it would appear, for Mohring.

SOME PROBLEMS?

Mohring concludes with a litany of problems that undermine the case for road privatization. He starts off, once again, on a fallacious foot:

The increasing congestion that accompanies increasing travel on a given road is the transportation counterpart to the increasing short-run marginal cost of widgets that accompanies increasing output from a given widget factory. Both increases result from more intensive use of durable capital equipment—the law of diminishing returns at work.³⁸

Nothing could be further from the truth. Increasing marginal costs simply have nothing whatsoever to do with congestion. The former is entirely a phenomenon of diminishing returns to a fixed factor; the latter stems from variable demand and/or prices pegged below equilibrium levels. In the case of roadways, the prices are set by government exceedingly below that which would prevail in the evenly rotating economy of free enterprise; in fact, they are zero! It is no wonder at all that at such low, nay, non-existent prices, demand should upon more than one occasion outstrip supply.

Again Mohring repeats his misleading notion that “travelers usually take into account the congestion they will encounter but not the congestion they will cause.”³⁹ This is true, but only in the absence of market prices, which, in the words of Adam Smith, lead motorists “as if by an invisible hand” to take the latter phenomenon into account.

What are the specific difficulties that Mohring sees with road privatization? They are as follows:

1. Indivisibilities and economies of scale.

It cannot be denied that there are indeed indivisibilities and economies of scale with regard to road provision. But the same applies to the manufacture and supply of virtually all other goods and services, apart, of course, from those that satisfy the very strict requirements of perfect competition, a null set. In other words, indivisibilities and economies of scale serve not only as an insuperable barrier, for Mohring, for road privatization, but, also, if he is logically consistent, which he is not, for everything else under the sun as well.

States our author: “Unregulated road entrepreneurs could not generally be relied on to set marginal cost prices.”⁴⁰ The obvious rejoinder to this is that neither could anyone else be relied upon to do this either (apart from imaginary firms in the never-never land of perfect competition).

Inadvertently, perhaps, Mohring provides evidence for the fact that private-enterprise road operation is very robust. He states:

the California Private Transportation Company (CPTC) built an expressway in the median strip of heavily traveled State Route 91 (SR 91) which connects Orange and Riverside Counties in Southern California. Fearing monopolistic excesses, the California Department of Transportation (CalTrans) attached strings to the right to build SR 91. It required lower—initially zero—tolls for vehicles with more than two passengers and limited the rate of return that CPTC may earn.⁴¹

The fact that a private enterprise, CPTC in this case, could even contemplate remaining in business under these very onerous conditions is ample testimony to its ability. At the best of times, it is difficult for entrepreneurs to compete with government; for the latter can give away their product for free, and finance their losses out of tax revenues, while this option is not open to the former. Can you imagine if there were government restaurants where meals could be had for free, and still private providers were able to turn a profit? Surely this would constitute strong evidence for the viability of the one, and the absence of such for the other.

Another difficulty with Mohring’s presentation is that he supports the notion that CalTrans “feared monopolistic excesses.” What is this other than the pot calling the kettle black, when the former, but not the latter, is of that color? If there is any “monopoly” in this scenario, it is surely CalTrans, not CPTC. It is CalTrans, not CPTC, that can endure in business even if rejected, totally, by consumers. It is CalTrans, not CPTC, that can force travelers to finance it through taxation. It is CalTrans, not CPTC, that is prevented from bankruptcy, no matter how poor a job they do. It is CalTrans, not CPTC, that can manage its roads so that people die like flies on their premises, without any necessary financial repercussions. If there is any “monopoly” of the piece, surely it is CalTrans, not CPTC.

2. Acquiring rights of way for private roads

States Mohring: “if road entrepreneurs are to obtain rights of way at less than overwhelming costs, action by the state is essential.”⁴²

However, we have already seen that eminent domain is not so much cheaper than private action in assembling a land package as it is better at camouflaging costs. When the government commandeers a right of way at an artificially low price, the true cost is not limited to this out of pocket expense, but rather includes, also, the alternative or opportunity cost suffered by the owner, which is an intrinsically subjective matter.

3. Sufficient toll revenues

Mohring asks: “How can we tell whether toll revenues would be great enough to justify publicly or privately financed road expansion?”⁴³

One might be excused for thinking that, for him, the question as to whether a good or service can be provided by markets depends upon its costs. But here we would run into a problem: if the costs are greater than the benefits,⁴⁴ does that mean that the state or private enterprise should undertake them? “Neither” would appear to be the proper answer, but there does not seem to be room for his answer in his lexicon. Alternatively, suppose that the benefits are greater than the costs. Again, we are like a ship without a rudder in terms of determining whether this means that the good in question should be nationalized by government or produced by profit-making firms.

If revenues are not great enough to exceed costs, then the issue is not whether governments or markets should be assigned to produce the good or service in question. Rather, from the perspective of promoting consumer welfare, no one should do so. Let us take a real world example of a case where costs always exceed revenues: rat burgers, mud pies, and dirty water. Here, the costs of putting together a factory to produce these items, hiring the necessary labor, conducting sufficient advertising, will always exceed the revenues there from, since there will be no customers for them at any positive price. Should the state then supply them? To ask this is to answer it.

4. Equity and pricing

Mohring announces himself as having “long supported marketable peak period road scholarships for the poor” on grounds of equity,⁴⁵ since he thinks that overall “congestion pricing would, indeed, be regressive.”⁴⁶ But bread and movies, too, are regressive. Surely, the poor spend a higher proportion of their income on these items than the rich. The clear implication, here, is either that no charges should be made for these items, e.g., everyone should get all the bread and movies he needs “for free,” or, if there is to be pricing for them, then the poor should receive a subsidy to help them with these purchases.

But the bread and movies enjoyed by the impoverished in a relatively free⁴⁷ country such as the U.S. are the envy, not only of those in the lower deciles of the income distribution in most other nations, but even of their middle classes. Thus, the implication is that if you want to help the poor, the best way to accomplish this task is not to undermine the capitalist system with government subsidies, but rather to rely on free enterprise to help the poor, as it has always and everywhere done.

On similar grounds, when tariffs are reduced as a step toward an economically freer society, it is incompatible with this initiative to award funds for retraining superfluous employees no longer working in their fields of comparative advantage, or to give out businesses subsidies. Investment, whether in physical or human capital, brings rewards in its train when done correctly, e.g., in the interests of the consumers. When there is misallocation of either of these types of resources, the free-market ethic implies that those responsible bear the costs, and not be able to shift them onto the general public through extra taxes and subsidies or “scholarships.”

These subsidies or “scholarships” have to come from somewhere; presumably, they will be based on coercive tax levies. Mohring is on record as castigating “robber barons,” the railroad owners who benefited from nineteenth century eminent domain powers.⁴⁸ But in advocating subsidies or “scholarships” for the poor who will have to pay more for road usage under pricing, he himself is taking on the role of “robber baron.”

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¹See http://www.tripnet.org/CensusDataCongestionJun2002.PDF.

²Typically, for bridges and tunnels, lower prices are charged upon purchase of a monthly ticket of about twenty-two trips. But who is more likely to make so many trips into the center of the city each month? Obviously, commuters. Thus, the counter-peak load pricing engaged in by the apparatus of the state exacerbates the problem instead of alleviating it.

³Nor must we forget the fact that this Sovietization of our transport system which leads to traffic congestion also promotes “road rage,” another new addition to our lexicon, and thus also raises traffic fatalities.

⁴Herbert Mohring, “Congested Roads: An Economic Analysis with Twin Cities’ Illustrations,” in Gabriel Roth, ed., Street Smart: Competition, Entrepreneurship and the future of Roads (New Brunswick, N.J.: Transactions Publishers, 2006), p. 142.

⁵Ibid.

⁶Ibid., p. 143.

⁷This is Mohring’s word for pretty much all goods other than road services.

⁸These curves are depicted in Mohring’s figure 1, which is marred by the fact that the AVC and the SRMC do not cross at the bottom point of the former.

⁹Mohring, “Congested Roads,” p. 145.

¹⁰Murray N. Rothbard, “The Present State of Austrian Economics,” Working Paper from the Ludwig von Mises Institute (November). Reprinted in The Logic of Action One: Method, Money, and the Austrian School (Cheltenham, U.K.: Edward Elgar Publishing, 1997), pp. 111–72; reprinted in Journal des Economistes et des Etudes Humaines 6, no. 1 (March 1995): 43–89; idem, “Toward a Reconstruction of Utility and Welfare Economics,” in The Logic of Action: Method, Money and the Austrian School I; Ludwig von Mises, Human Action, 3rd ed. (Chicago: Regnery, 1966).

¹¹Technically speaking, “externalities” are costs (or benefits, which we herein ignore) to third parties based on trades in the market. These fall into two categories: physical, on the one hand, and nonphysical or pecuniary, on the other. For the Austrian, a physical negative externality such as smoke pollution is no such thing; rather, it is a trespass of wayward smoke particles onto the lungs, lawns and other property of third parties. The reason this occurs has nothing to do with “market failure.” Rather, it is the failure of government to uphold private property rights. As to the nonphysical or pecuniary, such as where A opens up a store across the street from B and competes away from him some of the latter’s customers, this, too, is not a market “failure” but rather a paradigm case of the workings of free market and competition.

¹²Walter Block, “Road Socialism.” International Journal of Value-Based Management 9 (1996): 195–207.

¹³Indeed, as we have seen (text accompanying footnote 2, above), there is a pricing perversity, insofar as people who utilize roadways during high demand times actually pay less; thus, they are encouraged by the government, not at all by the market, to ignore the time costs they impose on others.

¹⁴Mohring, “Congested Roads,” p. 146.

¹⁵At least on this side of the G.U.M. stores of the late and non-lamented U.S.S.R.

¹⁶Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations (New York: Modern Library, [1776] 1965).

¹⁷In Mohring’s treatment of the equilibration between arterial roads and expressways (p. 146), he speaks of the motorists of each “imposing costs” (illustrated in his figure 2). This is the same fallacy, under different guise. There is no more of an “externality” in that case than in the present one under consideration. Both stem from incomplete privatization of what could be fully private property in a free society.

¹⁸Ibid.

¹⁹Charles W. Baird, “James Buchanan and the Austrians: The Common Ground,” Cato Journal 9, no. 1 (Spring/Summer, 1989): 201–30; James D. Gwartney Richard E. Wagner, eds., Public Choice and Constitutional Economics (London: JAI Press, 1988); James M. Buchanan, “Public Choice and Public Finance,” What Should Economists Do? (Indianapolis: Liberty Press, 1979); James M. Buchanan and Gordon Tullock, The Calculus of Consent: Logical Foundations of Constitutional Democracy (Ann Arbor: University of Michigan, 1971). For a critique of Public Choice, although not on these grounds, see Walter Block and Thomas J. DiLorenzo, “Is Voluntary Government Possible? A Critique of Constitutional Economics,” journal of Institutional and Theoretical Economics 156, no. 4 (December 2001): 567–82; idem, “The Calculus of Consent Revisited,” Public Finance and Management 1, no. 3 (2001): 37–56; Murray N. Rothbard, “Public Choice: A Misshapen Tool,” Liberty (1989): 20–21; idem, “Buchanan and Tullock’s The Calculus of Consent,” in The Logic of Action Two: Applications and Criticism from the Austrian School (Cheltenham, U.K.: Edward Elgar Publishing, 1997), pp. 269–74.

²⁰Ludwig von Mises, Socialism (Indianapolis, Ind.: LibertyPress/Liberty/Classics, 1981); Hans-Hermann Hoppe, A Theory of Socialism and Capitalism: Economics, Politics and Ethics (Boston: Dordrecht, 1989); Peter J. Boettke, Why Perestroika Failed: The Politics and Economics of Socialist Transformation (New York: Routledge, 1993); Hans-Hermann Hoppe, “Socialism: A Property or Knowledge Problem?” Review of Austrian Economics 9, no. 1 (1996): 147–54.

²¹Private communication with the author in December of 2002.

²²To put this in context, fewer than 3,000 people were murdered in the World Trade Center tragedy of 9/11/01.

²³See on this Roger Ahlbrandt, “Efficiency in the Provision of Fire Services,” Public Choice 16 (Fall 1973): 1–15; James T. Bennett and Manuel H. Johnson, “Tax Reduction Without Sacrifice: Private Sector Production of Public Services,” Public Finance Quarterly 8, no. 4 (October 1980): 363–96; Roger D. Blair, Paul B. Ginsberg and Ronald J. Vogel, “Blue Cross-Blue Shield Administration Costs: A Study of Non-Profit Health Insurers.” Economic Inquiry 13 (June 1975): 237–51; Thomas E. Borcherding, Budgets and Bureaucrats: The Sources of Government Growth (Durham, NC: Duke University Press, 1977); Kenneth W. Clarkson, “Some Implications of Property Rights in Hospital Management,” journal of Law & Economics 15, no. 2 (October 1972): 363–84; W. Mark Crain and Asghar Zardkoohi, “A Test of the Property Rights Theory of the Firm: Water Utilities in the United States,” Journal of Law & Economics 21, no. 2 (October 1978): 395–08; David G. Davies, “The Efficiency of Public Versus Private Firms: The Case of Australia’s Two Airlines,” Journal of Law & Economics 14, no. 1 (April 1971): 149–65; ibid., “Property Rights and Economic Efficiency—The Australian Airlines Revisited,” Journal of Law & Economics 20, no. 1 (April 1977): 223–26; H.E. Frech, “The Property Rights Theory of the Firm: Empirical Results from a Natural Experiment,” Journal of Political Economy 84, no. 1 (February 1976): 143–52; Cottom M. Lindsay, “A Theory of Government Enterprise.” Journal of Political Economy 84 (October 1976): 1061–77. I owe these citations to Randy Holcombe.

²⁴Even this is likely to be a vast underestimate, and for two reasons. First, it does not take cognizance of the fact that, in many cases, these so-called “private” workers are unionized. In the fully free society, there would be no institutions of this sort. See Walter Block, “Labor Relations, Unions and Collective Bargaining: A Political Economic Analysis,” Journal of Social Political and Economic Studies 16, no. 4 (Winter 1991): 477–507.

Second, was the Soviet Union even fully one fourth as efficient as the American (this is the implication of the analysis in the text, if we assume that that the former had zero privatization, and the latter 100 percent, an obvious overestimate)? Paul A. Samuelson (Economics, 5th ed. [New York: McGraw Hill, 1961], p. 830), depicts a convergence between the economies of the U.S. and the U.S.S.R. He claims (Economics, 12th ed. [New York: McGraw Hill, 1985], p. 837) that between 1928 and 1983, the growth rate for the Soviet Union was a remarkable 4.9 percent per year, higher than that for the U.S. Mark Skousen (The Making of Modern Economics [New York: M.E. Sharpe, 2001], p. 416; and “The Perseverance of Paul Samuelson’s Economics,” Journal of Economic Perspectives 11, no. 2 [Spring 1997]: 137–52) properly debunks these outrageous claims. There are recalls for all sorts of things: toasters, cars, tires: why none for Nobel Prize winning economists such as Samuelson, who has mislead an entire generation of economics students?

²⁵Mohring, “Congested Roads,” p. 147

²⁶Is this too harsh a characterization of eminent domain? Not really. Stripped of its legal imprimatur, there is no real difference between compelling a person to “sell” his land at a price he is unwilling to accept, on the one hand, and outright theft on the other. Suppose a criminal holds me up at gunpoint, demanding my wallet. As I comply with his wish, I object, on the ground that he is stealing from me. A philosophical robber, he is willing to bandy words with me. “Theft,” he says, “not a bit of it. Don’t ever say I’m stealing from you. On the contrary, I offer you the following ‘payment’ for your wallet.” Whereupon he hands me a paper clip, or a rubber band, or a piece of tissue paper or a blob of used bubble gum. When he does so, he converts what would otherwise constitute an outright theft into a forced trade, or eminent domain. (In Canada, this act is more accurately called “expropriation.”) Yet, is there any real difference as far as I am concerned in the two scenarios, one where he steals my wallet, outright, and the other where he gives me something worth less to me than my possession? There is not.

²⁷Mohring, “Congested Roads,” p. 147.

²⁸Ibid., p. 158.

²⁹I.e., in name only.

³⁰Actually, this amounts to a demand that there be only one product. If there are more than this amount, then, necessarily, they cannot all be homogeneous. But if so, then perfect competition is, to that extent, vitiated, since there must of necessity be a dilution in the number of buyers and sellers of it.

³¹This requirement too, is illogical in that it violates the rules of mathematics. It is impossible that no one buyer or seller has exactly zero effect on price, and yet all of them, together, do. A million times zero is still zero, despite the best efforts of mainstream economists to defend the opposite conclusion.

³²William Anderson, Walter Block, Thomas J. DiLorenzo, Ilana Mercer, Leon Snyman, and Christopher Westley, “The Microsoft Corporation in Collision with Antitrust Law,” Journal of Social, Political and Economic Studies 26, no. 1 (Winter, 2001): 287–302.

³³Mohring, “Congested Roads,” p. 148; he speaks of his “transportation-planning computer programs” (p. 11).

³⁴Mohring, “Congested Roads,” p. 154.

³⁵If this were really true, private enterprise would give away these services for free, as loss leaders or as part of a larger package, in much the same way as Disneyland gives “free” use of its thoroughfares to pedestrians, as malls do the same for shoppers in its internal streets, and indeed, for its outer streets and often, parking spaces.

³⁶Other businesses earmarked by great cyclicality include movie theaters, restaurants, football (Super Bowls), baseball (the World Series), hotels, air transport, cruise ships, etc.

³⁷Mohring, “Congested Roads,” p. 143.

³⁸Ibid., p. 157.

³⁹Ibid.

⁴⁰Ibid., p. 159

⁴¹Ibid., p. 162.

⁴²Ibid.

⁴³Ibid., p. 163.

⁴⁴We stipulate that these can be meaningful terms despite their inherent subjectivity. See on this William Barnett II, “Subjective Cost Revisited,” Review of Austrian Economics 3 (1989): 137–78; James M. Buchanan and G.F. Thirlby, L.S.E. Essays on Cost (New York: New York University Press, 1981); James M. Buchanan, Cost and Choice: An Inquiry into Economic Theory (Chicago: Markham, 1969); Thomas J. DiLorenzo, “The Subjectivist Roots of James Buchanan’s Economics,” Review of Austrian Economics 4 (1990): 180–95; Mises, Human Action; Murray N. Rothbard, Man, Economy, and State, 2 vols. (Auburn, Ala.: Ludwig von Mises Institute, 1993); idem, “Buchanan and Tullock’s The Calculus of Consent.”

⁴⁵Mohring, “Congested Roads,” p. 165.

⁴⁶Ibid., p. 164.

⁴⁷James Gwartney, Robert Lawson, and Walter Block, Economic Freedom of the World, 1975–1995 (Vancouver, B.C.: Fraser Institute, 1996).

⁴⁸Mohring, “Congested Roads,” p. 162.