Monthly Archives: August 2010

Mises on Transportation Subsidies

One of the primary claims of left-libertarians such as Roderick Long and Kevin Carson is that the state has supported the proliferation of large-scale organizations through subsidies such as the building of public roads, the interstate highway system, and so forth. According to them, firms are larger and more concentrated than they would be relative to a market where transportation subsidies did not exist.

How do transportation subsidies lead to overall larger firm sizes? The primary point is that transportation costs are, in effect, socialized (or dispersed) whereas the benefits tend to be concentrated on those who use the roads the most. In other words, although the roads are open to everyone, firms that have a geographically large market (such as Wal-Mart) are paying roughly the same as everyone else but actually using the roads more. Big-box retailer’s business model is dependent on long haul trucking, which is dependent on government subsidies to the roads.

The net effect of this is to increase the overall size of firms larger than they would otherwise be. The reason is simple: Were it not for transportation subsidies, the markets these firms compete in would probably be much smaller, and much more local. Without transportation being subsidized, a business model based on a market the size of (say) most of the United States would not be feasible.

At any rate, the reason I brought this up was because of a Mises Daily that I read this morning. It’s called, “The Problem of External Costs and External Economies” (written by Mises), and deals with external economies and government subsidies. One part caught my attention, and relates to what I’ve been talking about. Mises writes about the effort of governments to build railroads and other types of infrastructure to specific rural areas in an attempt to allow rural food producers a chance at a larger market. The reason the government has to engage in this sort of activity in the first place is because private investors are unwilling to put up the funds to develop a private railroad system. If it was profitable to do so a private railroad could be financed, allowing these farms to ship food to wherever it needs to go. In these sorts of areas the costs of production are higher than in other parts of the country, because the agriculture is taking place on submarginal land. Mises writes that…

If the government, yielding to the demands of the interested pressure groups, builds the railroad and runs it at a deficit, it certainly benefits the owners of farm land in those poor districts of the country. As a part of the costs that the shipping of their products requires is borne by the treasury, they find it easier to compete with those tilling more fertile land to whom such aid is denied.

This is essentially the exact same situation Carson has been writing about. This isn’t a direct subsidy to those out-of-the-way producers of food, but an indirect subsidy that allows submarginal land to compete with marginal land when, without government help, it would not have been able to. Likewise, big-box retailers and other firms that have geographically large markets are able to compete where they would not have been able to without government transportation subsidies.

So, although this doesn’t really add anything crucial to the debate over how much transportation subsidies effect the overall size of firms, I think it’s interesting Mises seems to have weighed in on it a good many years before today’s left-libertarians.