Occasional X: The foul spirit of political economics (CCCLXXXVII)

“A government which robs Peter to pay Paul can always count on the support of Paul.” (George Bernard Shaw) George Bernard Shaw did not understand much of economics. Like most authors, he was in the disinfotainment business. The proof is in the silly repetition of the taxes-are-theft slogan. The simplified national accounts below (AXEC213 ⇓) show two economies, one (0) without tax, and one (1) with tax. In (0), the workers spend their entire wage income from the business sector Yw on consumption goods Ec. The business sector makes neither profit nor loss. The workers get the whole product. In (1), the workers realized that they needed a state to guarantee property rights, for example. As a consequence, they reduce their consumption expenditures Ec, and 'buy' instead government services Et with taxes. The government, at this stage, is similar to the business sector; it produces public goods/services and pays wages Ywg. Assume for the moment a minimum number of public workers/employees and a perfect organization. There is neither waste nor corruption. The additional public workers/employees spend their entire income on consumption goods Ecg; thus, the total spending Ec remains unaltered. All sectoral balances are zero. The market-clearing price remains unaltered. The profit is zero. However big the state is, there is no inflation. The resources are distributed exactly according to the people's preferences. The household sector needs private and public goods/services. It 'buys' them both voluntarily. The form that the 'buying' of public goods/services takes is taxes. This has different reasons, but has to be regarded as specific to the state. The combination of private and public goods/services is preferable to private goods/services alone. Thus, the household sector is better off with the (minimum) state, and the tax spending, which is, in the final analysis, voluntary. If done correctly, the size of the budget is a matter of the household sector's preferences. Needless to emphasize that, if the state takes the tax money and fires rockets at another state instead of delivering the public good, this is not in accordance with people's preferences. Or if they take the tax money and channel it to their cronies via some NGO. Or if they take the tax money from WeThePeople and pay bond interest to WeTheOligarchy. The defamation of the state is justified insofar as legitimate and productive actions are corrupted. However, corruption is not specific to the government sector. It applies to the business sector as well. Perhaps it is even worse there. The ultimate moral problem is human corruption, not the state. In the world of political propaganda, George Bernard Shaw was one of the most dishonest writers. His contributions to the economic discussion have been nothing more than proto-scientific garbage.

— AXEC (@EgmontHandtke) October 16, 2026