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Mises Explains The Santa Claus Principle

November 27, 2013 in Economics

By Mises Updates


Beginning on Sunday, December 1, Thomas DiLorenzo will be teaching “Santa Claus Economics: An Austrian Analysis of the Welfare State” at Mises Academy. This four-week online lecture course will cover the origins, effects, and myths of the welfare state. Readings include works by Murray Rothbard, Ludwig von Mises, Robert Higgs, George Reisman, Charles Murray, Ludwig Erhard, and Per Bylund, among others.

The Exhaustion of the Reserve Fund

From Human Action, Chapter XXXVI

by Ludwig von Mises

The idea underlying all interventionist policies is that the higher income and wealth of the more affluent part of the population is a fund which can be freely used for the improvement of the conditions of the less prosperous. The essence of the interventionist policy is to take from one group to give to another. It is confiscation and distribution. Every measure is ultimately justified by declaring that it is fair to curb the rich for the benefit of the poor.

In the field of public finance progressive taxation of incomes and estates is the most characteristic manifestation of this doctrine. Tax the rich and spend the revenue for the improvement of the condition of the poor, is the principle of contemporary budgets. In the field of industrial relations shortening the hours of work, raising wages, and a thousand other measures are recommended under the assumption that they favor the employee and burden the employer. Every issue of government and community affairs is dealt with exclusively from the point of view of this principle.

An illustrative example is provided by the methods applied in the operation of nationalized and municipalized enterprises. These enterprises very often result in financial failure; their accounts regularly show losses burdening the state or the city treasury. It is of no use to investigate whether the deficits are due to the notorious inefficiency of the public conduct of business enterprises or, at least partly, to the inadequacy of the prices at which the commodities or services are sold to the customers. What matters more is the fact that the taxpayers must cover these deficits. The interventionists fully approve of this arrangement. They passionately reject the two other possible solutions: selling the enterprises to private entrepreneurs or raising the prices charged to the customers to such a height that no further deficit remains. The first of these proposals is in their eyes manifestly reactionary because the inevitable trend of history is toward more and more socialization. The …read more


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