Mises on the public sector as “tax eaters” who “feast” on the assets of the ordinary tax payer (1953)

Ludwig von Mises

In a similar fashion to John C. Calhoun’s division of the world into net “tax-consumers” and net “tax-payers”, the Austrian economist Ludwig von Mises (1881-1973) distinguished between the ordinary citizens who paid taxes and the public sector entities like the New York subway which “consumed” the taxes paid by the former. This is a classic example of what Mises in 1945 termed “the clash of group interests”:

The financial embarrassment of the main European countries is predominantly caused by the bankruptcy of the nationalized public utilities. The deficit of these enterprises is incurable. A further rise in their rates would bring about a drop in total net proceeds. The traffic could not bear it. Daily experience proves clearly to everybody but the most bigoted fanatics of socialism that governmental management is inefficient and wasteful. But it is impossible to sell these enterprises back to private capital because the threat of a new expropriation by a later government would deter potential buyers.

In a capitalist country the railroads and the telegraph and telephone companies pay considerable taxes. In the countries of the mixed economy, the yearly losses of these public enterprises are a heavy drain upon the nation’s purse. They are not taxpayers, but tax-eaters.

Under the conditions of today, the nationalized public utilities of Europe are not merely feasting on taxes paid by the citizens of their own country; they are also living at the expense of the American taxpayer. A considerable part of the foreign-aid billions is swallowed by the deficits of Europe’s nationalization experiments…

A recurrent theme in classical liberal thought both in Europe and America is the notion that those who benefit from taxes, whether by working for the state or receiving state funded subsidies and grants, form a separate group with distinct interests from those who pay the taxes from their earnings or savings. In the 19th century James Mill (the father of John Stuart) distinguished between those who “pillage” and those who are “pillaged” and this idea was an important component in the political thought of the “philosophic radicals”. The English radical John Wade made this idea a key part of his analysis in his Black Book in which he listed all the beneficiaries of government subsidies in Britain in the 1820s and 1830s. In a cartoon which accompanied the 1835 edition he showed Gulliver (as the British taxpayer) bound and tied on the ground by government officials and tax recipients (as the Lilliputians) who rifle his pockets. Another depiction of this same idea was provided by the French cartoonist and caricaturist Honoré Daumier in “Gargantua” (1831) in which King Louis Philippe is shown as a classic example of the “tax eating” ruler. By the 1840s the French liberal political economist Frédéric Basiait (1801-1850) had developed these ideas into a more sophisticated analysis of what he termed “legal plunder.” His planned “History of Plunder” never eventuated because of his premature death in 1850. All we have is a sketch of what he planned to write on this interesting topic. On the other side of the Atlantic the Southern agrarian Jeffersonian republican John C. Calhoun (1782-1850) concluded in a very similar fashion in his Disquisition on Government (1843-1848) that “the necessary result, then, of the unequal fiscal action of the government is, to divide the community into two great classes; one consisting of those who, in reality, pay the taxes, and, of course, bear exclusively the burthen of supporting the government; and the other, of those who are the recipients of their proceeds, through disbursements, and who are, in fact, supported by the government; or, in fewer words, to divide it into tax-payers and tax-consumers.”