This file is a single-author political-economic essay, originally reprinted from The Freeman in 1953. Its scope is narrow but polemical: Mises attacks the welfare state as a fiscal and institutional illusion whose crisis has been concealed by capitalism’s prior productivity and, in postwar Europe, by American aid.
Mises opens by reversing the familiar socialist prophecy. The promised collapse, he argues, has not been capitalism’s but interventionism’s:
For about a hundred years the Communists and interventionists of all shades have been indefatigable in predicting the impending final collapse of capitalism.
The essay’s central thesis is that the welfare state rests on a false picture of the state as an independent source of wealth. Mises traces this imagination to Ferdinand Lassalle’s rejection of liberal “night watchman” government, presenting the welfare state as a quasi-religious promise of security and abundance.
The state had inexhaustible funds at its disposal, which could freely be used to make all citizens prosperous and happy.
Against this, Mises insists on the elementary budget constraint: the state can spend only what it taxes, borrows, or inflates away. The section “Let the Rich Pay” identifies the core political mechanism of welfare-state expansion: expenditures become popular because their costs are assigned to a supposedly inexhaustible minority.
The riches of the nabobs are considered inexhaustible, and so, consequently, are the funds of the government.
For Mises, progressive taxation reaches a practical limit once the wealth of the rich proves insufficient to finance mass benefits. His argument is not merely moral but arithmetical: redistribution cannot indefinitely raise general living standards once the taxable surplus is exhausted.
The house of cards built by the "new economics" is crashing.
The second major movement of the essay turns from redistribution to nationalization. Mises argues that public ownership is defended by treating entrepreneurs as parasitic and by assuming bureaucratic management can replace profit-seeking calculation. The European experience of state railroads, telegraphs, and telephones becomes his evidence that this assumption fails institutionally.
The result was catastrophic: scandalously poor service, high rates, yearly increasing deficits that have to be covered out of budgetary allowances.
His conceptual contrast between taxpayers and “tax-eaters” condenses the essay’s theory of public enterprise. Private firms under capitalism pay taxes out of revenues; nationalized firms, when unprofitable, consume tax revenue while masking failure as public service.
They are not taxpayers, but tax-eaters.
The New York subway example localizes the same argument for American readers. Mises treats the subway deficit as a miniature welfare-state crisis: low fares are politically attractive, but someone must pay the difference. His reply to socialists who ask why transit should “pay” is that the real issue is not moral justification but fiscal source.
This "why" is really remarkable. As if the problem were to find an answer to a why, and not to a wherefrom.
The essay’s structure therefore moves from ideology, to taxation, to nationalized industry, to municipal transit, and finally to electoral warning. Its relevance lies in the way Mises links welfare promises, public ownership, and deficit finance into a single critique of interventionism: once prices, profits, and losses are politically overridden, scarcity reappears as tax burdens, service deterioration, and chronic deficits.
The closing pages answer the interventionist appeal to experience. Mises says critics of economics demanded facts over theory; nationalized utilities and municipal deficits now supply those facts.
There is no remedy for the inefficiency of public management.
The essay ends as a warning to voters rather than as a technical treatise. American exceptionalism, in Mises’s view, lies not in immunity from welfare-state logic but in having retained enough private enterprise to observe European failures from a distance.
History has been rather kind to the American voter. It has provided him with object lessons in socialism.
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