If you only allocate resources based on what buyers are willing to pay, resources will be incorrectly assigned to defence, environmental protection etc.
I'm not rejecting the concept of public goods. Whenever possible goods should be allocated based on what people can pay because that maximizes efficiency and freedom, but if a good is clearly public (non-rivalrous and non-excludable), important, and reasonable cost-effective, then I am not opposed to government purchase (actually that is in a sense what buyers are willing to buy, with the buyer being the government, but in another sense, if you view the tax payers as the potential buyers, it isn't, as they don't get to choose exactly how much tax they pay or where it goes).
The ability to deter or defeat invasion, and protect the countries interests, is also a public good, so I have no problem with funding a military force.
But
1 - The good you get is that public good, you get it at a net cost in other things, not at a net benefit to the rest of the economy in addition to that public good.
2 - The government can pay for resources it needs to create a public good out of tax money, but it shouldn't just take these resources from their owners (except perhaps in the most extreme cases and when it does that its at best a necessary evil), that's esp. true when the resources are people. Forcing unwilling people in to work for you is slavery. Yes you pay them, but handing money to someone your forcing to work doesn't completely change the basic nature of arrangement.
You are assuming that everything can be bought
I assume no such thing.
and that people buy what they need
Which is for the most part true, but wasn't a point I was making.
You cannot build a society solely based on market economy, you also need morale, altruism, standards and culture.
Getting back to the military and the draft issue, morale is likely to be higher when soliders are not forced in to duty and when they are adequately compensated (of course there are always many other factors, but all else being equal professional soldiers tend to have higher morale than draftees)
More generally for society - Of course not everything is directly an aspect of the market based economy, but free markets are not anti-morale, against altruism, harmful to culture, or something that precludes or rejects standards.
If we did not help our children and others altruistically, society would quickly turn ugly.
If your talking about welfare programs (which I wasn't) they are not altruism. You can only be altruistic with your own money. If I take from you to give to others in need I am not being altruistic. That doesn't necessarily mean I reject them, but in the good they do much evil is done as well, as they reduce positive incentives for those who pay for them (at the margins reducing and/or distorting investment and hard work from those who pay high rates), reduce positive incentives for those who receive the money (at the margins increasing dependency, and reducing initiative to take the steps that would life themselves out of poverty), and they are paid for by taxation, which is theft or extortion, even if its done for a good cause, even if it is a necessary evil.
All of which is a long ways away from the original discussion. Even if we assume that the draft and the welfare state and the moral way to go, that doesn't imply that drafting a bunch of people, and building bunkers and tanks, is a good practical investment. It may be, say if your facing an invasion by a hostile foreign power, but even in such a situation its an investment in ability to deter or defeat the potential invasion not a directly positive economic action. Looked at in dollar terms, all of the money that you spend on such things gets taken from the rest of the economy. You can also look at it directly in terms of resouces, the steel that goes in to those tanks, the concrete that goes in to the bunkers, the labor to make them, and the labor of the people manning them, all is unavailable for production of civilian consumption goods, or productive investment in the ability to produce goods and services for the civilian economy.
And when you take about the large examples, like WWII (since this discussion goes back to the idea of WWII as a stimulus), much of the production is quickly superfluous even in military terms. There are bunkers decaying in all parts of the world. Many ships, tanks, and aircraft where scrapped after the war (often recovering some useful resources, but not nearly as much as what went in to their production, particularly the resource of labor, the labor spent to produce them is gone, and the additional labor to scrap them also can't be used for other purposes).
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1. The Broken Window
Have you ever been witness to the fury of that solid citizen, James Goodfellow,*1 when his incorrigible son has happened to break a pane of glass? If you have been present at this spectacle, certainly you must also have observed that the onlookers, even if there are as many as thirty of them, seem with one accord to offer the unfortunate owner the selfsame consolation: "It's an ill wind that blows nobody some good. Such accidents keep industry going. Everybody has to make a living. What would become of the glaziers if no one ever broke a window?"
Now, this formula of condolence contains a whole theory that it is a good idea for us to expose, flagrante delicto, in this very simple case, since it is exactly the same as that which, unfortunately, underlies most of our economic institutions.
Suppose that it will cost six francs to repair the damage. If you mean that the accident gives six francs' worth of encouragement to the aforesaid industry, I agree. I do not contest it in any way; your reasoning is correct. The glazier will come, do his job, receive six francs, congratulate himself, and bless in his heart the careless child. That is what is seen.
But if, by way of deduction, you conclude, as happens only too often, that it is good to break windows, that it helps to circulate money, that it results in encouraging industry in general, I am obliged to cry out: That will never do! Your theory stops at what is seen. It does not take account of what is not seen.
It is not seen that, since our citizen has spent six francs for one thing, he will not be able to spend them for another. It is not seen that if he had not had a windowpane to replace, he would have replaced, for example, his worn-out shoes or added another book to his library. In brief, he would have put his six francs to some use or other for which he will not now have them.
Let us next consider industry in general. The window having been broken, the glass industry gets six francs' worth of encouragement; that is what is seen.
If the window had not been broken, the shoe industry (or some other) would have received six francs' worth of encouragement; that is what is not seen.
And if we were to take into consideration what is not seen, because it is a negative factor, as well as what is seen, because it is a positive factor, we should understand that there is no benefit to industry in general or to national employment as a whole, whether windows are broken or not broken.
Now let us consider James Goodfellow.
On the first hypothesis, that of the broken window, he spends six francs and has, neither more nor less than before, the enjoyment of one window.
On the second, that in which the accident did not happen, he would have spent six francs for new shoes and would have had the enjoyment of a pair of shoes as well as of a window.
Now, if James Goodfellow is part of society, we must conclude that society, considering its labors and its enjoyments, has lost the value of the broken window.
From which, by generalizing, we arrive at this unexpected conclusion: "Society loses the value of objects unnecessarily destroyed," and at this aphorism, which will make the hair of the protectionists stand on end: "To break, to destroy, to dissipate is not to encourage national employment," or more briefly: "Destruction is not profitable."
What will the Moniteur industriel*2 say to this, or the disciples of the estimable M. de Saint-Chamans,*3 who has calculated with such precision what industry would gain from the burning of Paris, because of the houses that would have to be rebuilt?
I am sorry to upset his ingenious calculations, especially since their spirit has passed into our legislation. But I beg him to begin them again, entering what is not seen in the ledger beside what is seen.
The reader must apply himself to observe that there are not only two people, but three, in the little drama that I have presented. The one, James Goodfellow, represents the consumer, reduced by destruction to one enjoyment instead of two. The other, under the figure of the glazier, shows us the producer whose industry the accident encourages. The third is the shoemaker (or any other manufacturer) whose industry is correspondingly discouraged by the same cause. It is this third person who is always in the shadow, and who, personifying what is not seen, is an essential element of the problem. It is he who makes us understand how absurd it is to see a profit in destruction. It is he who will soon teach us that it is equally absurd to see a profit in trade restriction, which is, after all, nothing more nor less than partial destruction. So, if you get to the bottom of all the arguments advanced in favor of restrictionist measures, you will find only a paraphrase of that common cliché: "What would become of the glaziers if no one ever broke any windows?"
2. The Demobilization
A nation is in the same case as a man. When a man wishes to give himself a satisfaction, he has to see whether it is worth what it costs. For a nation, security is the greatest of blessings. If, to acquire it, a hundred thousand men must be mobilized, and a hundred million francs spent, I have nothing to say. It is an enjoyment bought at the price of a sacrifice.
Let there be no misunderstanding, then, about the point I wish to make in what I have to say on this subject.
A legislator proposes to discharge a hundred thousand men, which will relieve the taxpayers of a hundred million francs in taxes.
Suppose we confine ourselves to replying to him: "These one hundred thousand men and these one hundred million francs are indispensable to our national security. It is a sacrifice; but without this sacrifice France would be torn by internal factions or invaded from without." I have no objection here to this argument, which may be true or false as the case may be, but which theoretically does not constitute any economic heresy. The heresy begins when the sacrifice itself is represented as an advantage, because it brings profit to someone.
Now, if I am not mistaken, no sooner will the author of the proposal have descended from the platform, than an orator will rush up and say:
"Discharge a hundred thousand men! What are you thinking of? What will become of them? What will they live on? On their earnings? But do you not know that there is unemployment everywhere? That all occupations are oversupplied? Do you wish to throw them on the market to increase the competition and to depress wage rates? Just at the moment when it is difficult to earn a meager living, is it not fortunate that the state is giving bread to a hundred thousand individuals? Consider further that the army consumes wine, clothes, and weapons, that it thus spreads business to the factories and the garrison towns, and that it is nothing less than a godsend to its innumerable suppliers. Do you not tremble at the idea of bringing this immense industrial activity to an end?"
This speech, we see, concludes in favor of maintaining a hundred thousand soldiers, not because of the nation's need for the services rendered by the army, but for economic reasons. It is these considerations alone that I propose to refute.
A hundred thousand men, costing the taxpayers a hundred million francs, live as well and provide as good a living for their suppliers as a hundred million francs will allow: that is what is seen.
1.30
But a hundred million francs, coming from the pockets of the taxpayers, ceases to provide a living for these taxpayers and their suppliers, to the extent of a hundred million francs: that is what is not seen. Calculate, figure, and tell me where there is any profit for the mass of the people.
1.31
I will, for my part, tell you where the loss is, and to simplify things, instead of speaking of a hundred thousand men and a hundred million francs, let us talk about one man and a thousand francs.
1.32
Here we are in the village of A. The recruiters make the rounds and muster one man. The tax collectors make their rounds also and raise a thousand francs. The man and the sum are transported to Metz, the one destined to keep the other alive for a year without doing anything. If you look only at Metz, yes, you are right a hundred times; the procedure is very advantageous. But if you turn your eyes to the village of A, you will judge otherwise, for, unless you are blind, you will see that this village has lost a laborer and the thousand francs that would remunerate his labor, and the business which, through the spending of these thousand francs, he would spread about him.
1.33
At first glance it seems as if the loss is compensated. What took place at the village now takes place at Metz, and that is all there is to it. But here is where the loss is. In the village a man dug and labored: he was a worker; at Metz he goes through "Right dress!" and "Left dress!": he is a soldier. The money involved and its circulation are the same in both cases: but in one there were three hundred days of productive labor; in the other there are three hundreds days of unproductive labor, on the supposition, of course, that a part of the army is not indispensable to public security.
1.34
Now comes demobilization. You point out to me a surplus of a hundred thousand workers, intensified competition and the pressure that it exerts on wage rates. That is what you see.
1.35
But here is what you do not see. You do not see that to send home a hundred thousand soldiers is not to do away with a hundred million francs, but to return that money to the taxpayers. You do not see that to throw a hundred thousand workers on the market in this way is to throw in at the same time the hundred million francs destined to pay for their labor; that, as a consequence, the same measure that increases the supply of workers also increases the demand; from which it follows that your lowering of wages is illusory. You do not see that before, as well as after, the demobilization there are a hundred million francs corresponding to the hundred thousand men; that the whole difference consists in this: that before, the country gives the hundred million francs to the hundred thousand men for doing nothing; afterwards, it gives them the money for working. Finally, you do not see that when a taxpayer gives his money, whether to a soldier in exchange for nothing or to a worker in exchange for something, all the more remote consequences of the circulation of this money are the same in both cases: only, in the second case the taxpayer receives something; in the first he receives nothing. Result: a dead loss for the nation.
1.36
The sophism that I am attacking here cannot withstand the test of extended application, which is the touchstone of all theoretical principles. If, all things considered, there is a national profit in increasing the size of the army, why not call the whole male population of the country to the colors?
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