Simple Liberty  

 

     
   
     

To Alter Or To Abolish

Chapter 35

The Free Rider Fallacy

Written by Darrell Anderson.

There is no worse tyranny than to force a man to pay for what he does not want merely because you think it would be good for him.

Professor Bernardo de la Paz, The Moon is a Harsh Mistress, written by Robert Heinlein

When discussing the “requirement” for using force and coercion to collect tax revenues and distributing “common” goods and services, a popular justification is the topic of the “free rider.” What are free riders?

Free rider: One who receives the benefit of a good without contributing to its costs. Public goods and commodities that generate external benefits offer people the opportunity to become free riders.[1]

How does this free rider problem manifest itself? With large-scale economies and so-called common goods and services, transaction costs are high because so many people are involved.[2] However, unlike the inherent right to exclude associated with true property rights, because of the way in which political systems operate there is no way to exclude certain consumers. To counter this problem, many individuals believe that costs must be coercively distributed among everybody. Like all exchanges, persuasion is the preferred means, not coercion. To eliminate this perceived problem, coercion is nonetheless used.

The so-called free rider incentive is a naturally existing component associated with human existence — but is manifested only under artificially created situations. With a true property-based social system, the right to exclude is recognized and honored; thus, no free rider problem arises with respect to actual exchanges of wealth. The so-called free rider problem arises only when political systems are used to create artificially commonly “owned” property, and to provide certain goods and services not desired by all people.

The desire to receive something in exchange for nothing cannot be eliminated. Natural self-interest always will motivate people to look for the easiest way to sustain energy flows. All humans are motivated to seek benefits at minimal investment and cost. The principle of scarcity teaches that competition is natural and normal. Science teaches that creating perpetual motion is impossible, and the effects of the Second Law of Thermodynamics can be offset only partially. Therefore, every human desires to receive maximum return with minimal effort. That is, this desire to get something for nothing or for as little as possible is normal and natural.

When the ability to exclude is quashed or debased, then a free rider problem arises. When property boundaries are honored, eliminating the so-called free rider is merely an issue of exclusion and persuasion. When property rights are debased, many people then try to eliminate the free rider problem with coercion. Coercion is a fundamental violation of the desire to pursue happiness. Coercion acts as a catalyst and accelerator to cause the free rider issue to grow in magnitude.[3] People do not like being forced to pay for goods and services they do not want, they prefer to consume and exchange voluntarily. As resistance increases, so does the free rider problem. When an individual is forced to pay for an unwanted good or service, that person attempts to seek compensation by benefiting from some other good or service — at no cost. Although the desire to get something for nothing never can be eliminated, the problem is exasperated because of the social disorder caused by fiat dictatorial law and the illusion of commonly “owned” property, goods, and services. The free rider problem is resolved quickly simply by restoring and honoring property rights which, by definition, includes the right to exclude.

The free rider issue is further complicated because there exists so-called “publicly” owned property. People will attempt to benefit from these goods and services without cost. If an individual can avoid or minimize participation in coerced wealth redistribution schemes, an individual reduces investment into the coerced common pool. Eliminate “publicly” owned goods and services and the free rider issue disappears. With respect to “public” property, the free rider issue is merely a form of rent seeking. Eliminate the ability to redistribute wealth forcibly, and the problem disappears. Contractual relationships[4] and user fees can help eliminate the so-called free rider problem.

The so-called free rider problem usually is argued in a manner to intimate that because the incentive to free ride exists that this is the only motivation that need be considered. However, there are other incentives for why people will or will not pay for goods and services. The free rider incentive only indicates an opportunity not to participate, but provides no conclusion about whether an individual actually will choose to ride free. Additionally, many individuals presume the free rider issue means everybody needs and wants a specific good or service when there is no practical way of actually knowing that information without expending an indefinite quantity of energy to research the question. Just because an individual chooses not to participate does not mean the individual is free riding, but might only mean that the good or service is not wanted by the individual.[5] Proponents of the free rider argument always assume that those who do not pay concurrently want the specific good or service.[6]

This is a classic “which came first, the chicken or the egg” dilemma. Many individuals believe that force and coercion is necessary to counteract free riders. A mistaken belief in “common goods and services” created the opportunity to become a free rider, and being coerced into participating in a common pool created the desire to take advantage.

Most importantly, the so-called free rider issue is mostly one of perception. Regardless of what an individual or group of people does, somebody else benefits indirectly from those actions. That is, there often is a spillover effect.[7] For example, a well-manicured and maintained front yard benefits all neighbors, both aesthetically and in likely increased property values. Nobody forces that individual to provide such attention to detail, nor is anyone else required to keep pace. Likewise, a large oak tree growing near a property line can provide shade for both the titleholder and the next door neighbor. There are implied benefits received and at no cost to the secondary beneficiaries. All human actions affect second and third parties in some indirect way. There is no way in which such actions do not carry some kind of spillover effect.[8]

The spillover effects in any group of people are many. Every individual benefits from the previous actions taken by others. For example, today every individual benefits directly or indirectly from many of the previous inventions of Thomas Edison.[9] Electricity helps promote a more productive society and nobody escapes those spillover benefits. Every individual is always a beneficiary and thus, a “free rider” of past events.[10]

The illusion of the so-called free rider is amplified when people decide to improve the quality of their own life and do not want others to indirectly benefit from spillover effects. Consider 10 neighbors living at the end of a cul-de-sac. The neighbors decide they want to add sidewalks around the cul-de-sac. Information is gathered to determine the cost and 8 of the 10 neighbors decide to participate in the project and share the costs. Two neighbors do not want sidewalks and refuse to share in the costs. The other eight neighbors then must decide if they want to proceed. If they do they will perceive the other two neighbors as free riders, but are they? There is no doubt the two unwilling neighbors will benefit from the project, but from a foundational perspective of property rights and contracts, the other eight neighbors got exactly what they contract for — sidewalks. They receive no less than what they voluntarily sought and contracted. No force and coercion was used to make them build sidewalks. In other words, there are no free riders, only the perception of free riders. Certainly if the unwilling two neighbors had shared in the costs of the project the remaining portion of the other eight neighbors would have been reduced, but that fact provides those eight neighbors no standing to coerce the other two neighbors into sharing the costs. The true issue is the eight neighbors simply do not like the idea of their labor and wealth benefiting somebody who refused to participate. In any environment of free association and voluntary exchange, nobody receives less than they bargained. Spillover effects might allow some participants to benefit more, but never less. Non-participants might benefit too and that cannot be prevented.

Some people always benefit from spillover effects, often many people. Therefore, just as a business owner considers various “hidden” or “unknown” costs of production, so too would “common” goods and services be priced to account for the so-called free rider. In a model where the political system is restricted to protecting boundaries, the free rider issue is eliminated because only those people who choose to use certain services pay the fees. People get exactly what they contract for.

The best that can be hoped for is to minimize the spillover effects a so-called free rider might receive or, raise the cost of internalizing those benefits. Although there are natural limits to regulating the spillover effects of various human actions, many direct effects can be controlled largely through recognizing and honoring property rights.

What about so-called free riders in the legal system? Customary law foundations never will disappear, and if an individual is accused and adjudged of trespassing against an individual or property, then the individual will be held accountable, regardless of whether the individual actively participates in the political society. If an individual is adjudged of trespassing, then that individual will be held liable for all legal costs, including whatever restitution is issued to compensate the victim.

The only true free riders are politicians, bureaucrats, and private employees who benefit from politically coerced, tax-supported salaries and wages. Such people receive their sustenance using the political means of sustaining energy flows and do not pay taxes. Although they might file forms and “suffer” withholding, they nonetheless pay no taxes. The reason is their income is derived from the general treasury. Where do collected taxes go? Into the general treasury. In other words, with respect to such people, the money simply passes through their hands momentarily.

As a further thought exercise, imagine that all taxes were eliminated. What happens to your wages and salaries? They increase. What happens to the wages and salaries of politicians, bureaucrats, or employees dependent upon tax revenues? Those salaries shrink or altogether disappear because the bulk of their revenue streams disappear. Therefore, such recipients pay no taxes because if they did their wages and salaries would increase too.

In short, such people receive the benefits of taxpayer extortion, but pay nothing in return. They maximize external benefits without internalizing any costs.[11] This thought exercise also demonstrates that politicians do not produce but only redistribute wealth — minus their “processing” and “handling” costs.

Spillover effects never can be eliminated. The so-called free rider issue is actually a subtle desire to create virtual perpetual motion by capturing the labor of other people. The entire purpose of introducing into discussions the concept of free riders is to create feelings of jealousy and envy, and thereby to trick people into thinking force and coercion are justified to capture the labor of other people. In other words, the entire free rider issue is sleight-of-hand and slick psychology.

In a social system emphasizing persuasion and cooperation, free association, and voluntary exchange, there never will be free riders of the classical definition. Each individual pays his or her own way all the time. The spillover effect of enjoying your neighbor’s oak tree is simply icing on the cake as a result of people embracing mutual survival and peaceful coexistence.

The free rider fallacy is another attempt to rationalize the enslavement of other individuals and “might makes right.”

Finis.

Terms of Use

Next: Chapter 36 — Hindsight is 20/20

Table of Contents

Bibliography

Endnotes

[1] Gwartney and Stroup, Economics, Private and Public Choice, p. 624.

[2] Epstein, Takings, p. 5.

[3] Benson, The Enterprise of Law, p. 272.

[4] Benson, The Enterprise of Law, pp. 357–358.

[5] Fielding, “Nonexcludability and Government Financing of Public Goods,” pp. 294–295.

[6] Rothbard, “The Myth of Neutral Taxation,” pp. 542–543.

[7] Gwartney and Stroup, Economics, Private and Public Choice, p. 67.

[8] Block, “Public Goods and Externalities,” p. 2.

[9] Rothbard, “The Myth of Neutral Taxation,” p. 545.

[10] Rothbard, Man, Economy, and State, pp. 888–889.

[11] Hoppe, Democracy, p. 100, footnote 15, citing Murray N. Rothbard, Power and Market.