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Theories of Public Goods
author: Dragan Drača

Inspite of the usual, ahistorical treatment of capitalism as eternal, the only possible social order by bourgeois economists - which implies one comprehensive theory of capitalism, their views and theories on capitalism have changed side by side with its development, constantly fighting among themselves and denying each other. The result of this is that what represents "economics science" is actually a heterogenous set of ideas, mutually conflicting and sometimes completely contradictory. Bourgeois economists prefer to call these by a euphemistic name, "schools of economics", but this does not make a difference. Which one of them will be considered as valid at some point of time, and thus the base of economic policy of the State, depends on the stage of development of the capitalist system and on interests of the ruling (capitalist) class which are politically defined and expressed by the State apparatus - its instrument for the perservation of the given order.[7, 10]

This is particularly obvious in the field of the theory of public goods, a branch of bourgeois economics which deals with the role and place of the State in capitalist system, because it is involved in defining current economic policy more than any other branch. All the methodological shortcomings, the ahistorical and static treatment of economic (and social) phenomena, described by Marx in his critique of classic political economy[11,12], are present in the theory of public goods as well. How it could otherwise, unless one wishes to destroy the whole of bourgeois economics upon which this theory is based? Besides many of the "less significant theories", two doctrines that dominate the theory of public goods are the Keynesean and monetarist views of the place and role of the State in capitalism. Those doctrines are not homogenous themselves, but they represent sets of views that "agree in principle" with dozens of variations. Both "schools" are based upon the belief that people need to consume both "private" and "public goods" in order to satisfy their needs.[18]

Private and public goods

1) Private goods are defined as goods which have the characteristics of exclusiveness and rivalry. Rivalry means that if one person has certain goods, than there are less of these goods for others in society, and exclusiveness means that it is possible to deny others the use of particular goods.

2) Public goods are goods that are simultaneously available to all and that can be consumed by others without limit.

These definitions of private and public goods, these fundamental categories of the theory of public goods, are a pictoresque illustration of the absurdity and unscientific character of the methodology of bourgeois economists. Just as bourgeois economic theoreticians start from the existence of private property as eternal, the "natural state of things" and as they oversee the fact that private propery is a socio-historical category, in this theory they treat goods as if they have some objective property which makes them private or public. And then they reduce the role of the State in the capitalist economy to the identification and provision of public goods. However, this - at first glance - easy task turns out to be impossible to solve! The goods stubbornly reject to fall into their classification.

Faced with the emptiness and uselessness of this abstract classification, because it turns out that there are almost no goods which can be treated as pure public goods[18], bourgeois economists invented a third category: quasi-public goods. Those are the goods which are "neither here, nor there", and anything can be quasi-public good in some sense - it can be spatialy or temporarily limited, with or without exclusiveness, etc. It is at this point that the first disagreements arise between bourgeois economists over which goods should be considered quasi-public, and which result in a greater or lesser presence of the State in the capitalist economy. The more goods some economist treats as public, the more he supports intervention of the State in economy, and vice versa.

This fundamental problem of classification of goods is impossible to solve because it is posed in the wrong way in the first place. Private property is not, nor can it be a relationship between goods. Goods cannot be private or public per se. Private property is a social relationship, i.e. the relationship between two or more humans. Private property implies the surrender, either voluntary or under the threat of force, of control over a certain object, in favour of another person. This simply means that another subject does not engage in interaction with a particular object without the consent of its "owner". This does not change, or add new properties to the object over which the property relation is exercised. Thus, there are no "objectively" private or "objectively" public goods, and any attempt to determine them is doomed to failure. Bourgeois economists are completely blind to the social character of "private goods". Goods are private only as long as the rest of society recognises "the right" of ownership to its owner, i.e. as long as the dominant class is able to impose to the rest of the society property relations it prefers.

Bourgeois economists try to escape the problem of the classification of goods into private and public by subsuming everything that can not be produced and sold in the market under the notion of public goods. Therefore, the task of the State becomes to provide everything that is necessary for the reproduction of the existing system and for the life of the people, which the market is incapable of producing. However, this can not solve the problem because it is not possible to precisely separate the market from the State. The capitalist State creates "institutional conditions" for the existence and functioning of the market. In other words, only after the State by its instruments of compulsion secures the existence of private property and defines the "legal" modes of its movement (buying, selling, presents, etc.), can one speak of the existence of the market.[6] The antagonism between the State on the one hand and the market, which is of an absolute character in the minds of bourgeois economists, is in fact only relative. For example, the modern notion of a "free market" has a very different meaning today than it had had a few decades or centuries ago (it is limited by the legal prohibition of child labour, anti-trust laws, etc.), and something that yesterday was "State intervention and suffocation of the free market", today is "an institutional condition for the existence of free market". Bourgeois economists simply cannot agree on where the boundary between "institutional conditions" and State intervention, i.e. public goods, is. They would like, and especially the representatives of the neoliberal school among them, that the market works on its own without the State - as a matter of fact, they usually assume the historical primacy of the market over the State in their theorizing. And yet, there is nothing further from the truth. All modern capitalist systems, without exception, came into being only after the capitalist class won the political power through bourgeois revolutions and created the legal conditions for establishing the national market; or were created in colonial countries by already established capitalist powers. (This does not mean that there was not some form of trade before that, but simply that it wasn’t dominant mode of production - it was suplementary to feudalist or slave-holding mode of production.) The impossibility of clearly distinguishing between the market and the State makes this approach useless, too. Some goods that are not profitable at a given moment (and therefore are not produced by capitalists), maybe would become profitable if some conditions created by the State changed - e.g. if the guaranteed minimum wage is abolished, then lower costs of labour power would make production profitable, etc.

Even greater confusion is created by so-called "market failure". Bourgeois economists define it as a case when the market does not work in an ideal way, presupposed by their theories. When an "exception" emerges in practice, the State should solve the problem. However, this is not easy to solve in theory – let alone in practice! They cannot agree on how the ideal market should work[6]. To make things worse, these "exceptions" are in the real world far more common than perfect competition which bourgeois economists dream of; there is almost no branch in the modern economy that has not some kind of "deformation" in its functioning. This is simply the inevitable consequence of the process of the concentration and centralisation of capital[11, 12] in this stage of the development of capitalism, to which bourgeois economists prefer to turn a blind eye, providing the excuse that themselves are "dealing purely with theory". Paraphrasing Hegel, if reality does not fit their theories, all the worse for reality.

The State and the budget

The question that arises at this point is: how, then, does State intervention in capitalism work in practice? It is obvious that the theory of public goods and bourgeois economic theory in general is incapable of providing a reasonable explanation, because they represent a bunch of empty concepts passing themselves for a "scientific" outlook. Almost every action of the capitalist State can be defended from the positions of one or another bourgeois "school of economics".

The State, as Marx and Engels explained[7, 11, 12], comes into being at a certain stage of the historical development of society, as a result of the division of the society into classes, and it changes accordingly with changes in the modes of production and corresponding class divisions that accompany them. The capitalist mode of production is characterised by the division of society into the capitalist and working classes, where the capitalist class has a monopoly of ownership over the means of production while the working class has to sell its labour power in exchange for what it needs to survive. They have conflicting economic interests and the class struggle between them is constantly going on. The State is a social force ("special armed bodies of men"[10]), the "public government" which originates from society and places itself above it. The State apparently stands above society, preventing the class struggle from tearing apart the existing "order" and preventing the hampering effect of the class struggle on the development of the productive forces. The State, which is the result of the class struggle, is the apparatus of the most powerful, economically ruling class, which enables it to also become the politically ruling class. In other words, the State in capitalism articulates and enforces primarily the interests of the capitalist class, with more or less frequent concessions to the working class in accordance with the rise or fall in its power and resistance. And precisely this explains the changes in the level of State intervention in capitalist economies. The strong presence of the State in the economy, the nationalisation of whole branches of industry and the so-called "welfare state" in the post-WWII period were the result of the crisis of the economics of liberal capitalism and development of the self-consciousness and self-organisation of the working class; in the same way in which "deregulation" and "reprivatisation", in last few decades of twentieth century, were the result of weakening of the working class and the incapability of the State to ensure with its institutions and policies the further development of capitalism The dominance at given times of the liberal, Keynesean and neo-liberal theories in bourgeois economics is just a reflection of such objective processes. Of course, this does not mean that most bourgeois economists do not sincerely believe in the validity of their theories, and that they do not work on their development, but simply that the policital government – the State apparatus, selects, applies and further develops only those theories which suit the interests of the capitalist class at that given moment in the best way, and contribute to preservation of the capitalist system.

But, bourgeois economists do not like this explanation of the State and its role in the capitalist system, because it leads to very unpleasant conclusions - to the necessity of abolition of the division of society into classes, and to socialist revolution! They understand very well that this is an attack on the foundation of their economic doctrine, without which the doctrine would have no sense – it is an attack on the sacred institution of private property.

Because of this, they prefer not to explore the essence of the phenomenon of the State, but are pleased with what is right before their eyes. The public government which wins in public elections wins the legitimacy for tax collection, and uses those funds to finance its actions for the preservation of the existing capitalist system and the market. These are the horizons of their understanding of the State. This explains how they reach the conclusion that the market has historical primacy over the State: since government is elected at elections at given intervals, every new government finds anew some already existing market, and from this they extrapolate this infinitely into the past and "logically" conclude that the market existed before the State did.

So, since the State apparatus arrives at some already existing market, it has nothing else to do but to collect taxes into the budget, and to finance "public needs and public goods" from this same budget. From this stems the fundamental principle of the classic bourgeois theory of the State - the budget must be balanced, income must be equal to spending. This is the way in which the market system is reproduced because the money that has been taken away from the private sector is returned to it through public spending, and only redistributed in a way which allows the market to overcome the contradictions it falls into by itself. That which is necessary for the survival of the market, but which individual capitalists cannot or do not want to produce because it is not profitable (roads, schools, hospitals), is produced by the State as the collective capitalist.

The Keynesean doctrine

Things get complicated with the development of paper money and with the takeover by the State, from the banks, of their monopoly right to print money. The amount of money in circulation becomes a controllable variable in the hands of the State, so that the market mechanism of spontaneous money-regulation cannot work properly any more. The State becomes a potential cause of new deviations of the functioning of the market (too much money in circulation leads to the general rise of prices - to inflation, and to too little deflation). The way in which this happens and what the possibilities and consequences of conscious control of this process are, is the subject of numerous debates through decades. The Great Depression in the ’30s, and great material destruction during World War Two put to the fore the question of the active role of the State in the capitalist economy, and Lord Keynes's view of this process shaped the economic policy of capitalist states in post-war decades.

The chronic crises of hyperproduction, caused by the internal contradictions of the capitalist mode of production[11, 12], Keynes explains as the inadequacy of aggregate demand (but this is only the superficial manifestation, not the essence of the problem!) and as a defect inborn to capitalism which the State should correct. This marked a qualitative leap in bourgeois theory, in contrast with the views of classical bourgeois economists, who considered the market to be self-regulatory and stable. Keynes insisted that the State has to artificially raise the level of investment in the economy in order to increase aggregate demand, even if this means deficit of the State budget. Deficit is, in Keynesean view, acceptable and can be tolerated because the positive effects of increased demand will speed up the development of the eceonomy and compensate for the negative consequences. The rise of money-supply, which is a side effect of the deficit (or, the result of its payment to be precise), it is said, will not endanger the capitalist system. Although the Keynesean theory did not cross the boundaries of economy of public goods, the influence of the State on the capitalist system grew significantly in practice - through the nationalisation of whole branches of the economy, new public enterprises and the expansion of instruments which the State used to intervene. "The welfare state" was supposed to turn the ruthless system of competition into "capitalism with a human face". In Marxist terminology, the working class was given numerous concessions, such as a free health system, universal education, etc. in order to pacify it and reduce its resistance to capitalism.

The neoliberal regression into ideological fundamentalism

However, since the Keynesean concept was tackiling not the essence of the problem but its superficial manifestations, the crises of capitalism started to express themselves in different ways - through inflation, the stagnation of growth, etc. As a reaction to that, new theories emerged in bourgeois economics which criticise the State bureaucracy, and declare the economic inefficiency of the State as the source of all economic problems. Indeed, the capitalist State cannot function efficiently, from the standpoint of profitability as a fundamental capitalist principle. But, bourgeois economists used this as "proof" that real-socialism in the East could not be economically successful, and as an ideological weapon to discredit the ideas of communism as an alternative to the capitalism. But they ignored completely the fact that the practice of real-socialism was not the embodiment of the ideas of communism but those of Totalitarianism, which only masked itself with socialist rhetoric.

The critique of the State bureaucracy, merged with an understanding of the inflatory consequences of a budget deficit, could lead only in one direction: to the demand that "the economy must be freed from State influence and control". In order to make that demand "scientifically valid", it was necessary to bury the Keynesean understanding of the instability of capitalism, and to resurect liberal theories about its self-regulation. The fact that the Keynesean theory would never have come into being if capitalism really is what liberal theorists claim it to be does not upset them at all. This step backwards was necessary to revive the quantitative theory of money and to support a conclusion that deficit and the consequent rise of money supply cannot stimulate investments but only create inflatory shocks. The concept of budget-balance is reaffirmed. That means that State intervention must be reduced, the "welfare state" must be abolished and the public sector must be reprivatised. What happened in practice is that whole branches of the economy were sold and that many of the rights of the working people were abolished. The dynamism for the further survival of capitalism was sought in a rising level of exploitation through the cutting of the indirect costs of labour - health insurance, education, pensions, etc.

The theory of public goods reached the end of its development in Keynesean doctrine. The next logical step would mean total control of economy by the State, and that is equal, for bourgeois economists, to a jump into the abyss. They try in their neoliberal theories to reduce the economy of public goods "to a reasonable level", i.e. to cripple it to a level which can justify the minimalist view of State intervention in capitalism. Therefore, the economy of public goods has degenerated during last few decades, together with bourgeois economic thought in general. Neoliberal economists in the name of defence of basic ideological premises of bourgeois economics - of private property and the market, are digging up the corpses of orthodox theories of the nineteenth century. They will be used, in the same way as long ago the bodies of the Christian "saints" were used to terrorise the non-believers, as a crusade against critical thought in economics. For, the goal of bourgeois economic theory is not the understanding of the objective laws of the development of human society, but the ideological defence of status quo, i.e. existing capitalism.

Scientific thought has to break with the apologetic trend to Capital of bourgeois economic theory, and to create a science of the rational organisation of the process of social reproduction based on the dialectical-materialist method. This means the abolition of the fictious theoretical dichotomy of public and private goods, based on a correct understanding of the social character of the process of production, and the abolition of the treatment of the existence of private property as axiomatic. The starting point for this is Marx's critique of political economy.

- References:

1. Michael Albert and Robin Hahnel, "A Quiet Revolution in Welfare Economics"
2. Theodore Bergstrom, "Lectures in the Theory of Public Goods"
3. Barry Bozeman, "Public Value Failure: When Efficient markets May Not Do", Georgia Institute of Technology, 2000.
4. James M. Buchanan, "The Demand and Supply of Public Goods", 1968.
5. James M. Buchanan, "Cost and Choice: An Inquiry in Economic Theory", 1969.
6. Ha Joon-Chang, "Breaking the Mould: An Institutionalist Political Economy Alternative to the Neoliberal Theory of the Market and the State", United Nations Research Institute for Social Development, 2001.
7. Fridrih Engels, "Poreklo porodice, privatnog vlasništva i države"
8. Raymond Geuss, "Public Goods, Private Goods" (Introduction)
9. J. Patrick Gunning, "Public Choice, Public Goods, and Constitutions"
10. V. I. Lenjin, "Država i revolucija"
11. Karl Marks, "Prilog kritici političke ekonomije"
12. Karl Marks, "Kapital"
13. Milić Milovanović, "Teorija cena", Ekonomski fakultet, 1999.
14. Julie Novak, "Public Choice Theory: An Introduction"
15. Žarko Ristić, "Menadžment ljudskih resursa", Ekonomski fakultet, 1999.
16. Žarko Ristić, "Fiskalna strategija", Ekonomski Fakultet, Beograd, 2001.
17. Žarko Ristić, "Fiskalni menadžment", Savremena Administracija, Beograd, 2002.
18. Tony Slack, "Public Goods and Externalies"

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