Gov’t spending and public wealth

While one should praise productive expenditure as an agent for economic growth, consumption expenditure leads to economic disaster

COMMENT

by Medecci Lineil

When the government spends more, the public spends less. Public works are not accomplished by the miraculously power of the wand. They are paid for by funds taken away from the citizens- Ludwig von Mises, Human Action: A Treatise of Economics.

In this article, I would like to analyse on why government spending is a bad economic practice and the impact of employment of public expenditure/investment does nothing to increase public wealth.

The Keynesian economists and politicians think that if the private sector is unwilling to spend or risk investment, then the governments role is to step in and spend or invest. They agree insofar as they see government spending as the most effective method to create a new level of wealth creation.

The market economy is nowhere neat and simple as statistical and mathematical model suggest. It is a genuine relationship of various people, various coordination and discoordination forces, scarcity, subjective value, various capital movement and billions of price formations.

In the opinion of Austrian economics, there is no such thing as public expenditure of government, only consumption expenditure. Then one must make a distinction between productive expenditure and consumption expenditure. While one should praise productive expenditure as an agent for economic growth, consumption expenditure leads to economic disaster.

Productive expenditure is expenditure for the purpose of making subsequent sales. It is the expenditures made by business firms in buying capital goods of all descriptions and in paying wages. Capital goods include machinery, materials, components, supplies, advertising etc. It does not constitute using up of money because the money are productively expended with the addition of profit.

Consumption expenditure is expenditure not the purpose of making subsequent sales but for any other purpose than selling. It does constitute a using up of money and money that are expended, either do not return at all or return only in smaller amount, eventually simply consumed.

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Gov’t spending and public wealth