The Principles of Political Economy

Henry Sidgwick

Book 3

The Art of Political Economy

Chapter 3

The Relations of Government to Industry

§2. In considering the economic aspect of the action of Government, under the other heads above mentioned, it is important to note that its interference may be exerted in various modes, and various degrees of intensity. Besides (1) interference by direct prohibition or command---which may, of course, vary indefinitely in gravity---the Government may (2) indirectly prevent or discourage certain kinds of contract by refusing, to enforce them; or (3) it may give to the obligations involved in certain common kinds of agreements such as Sale and Purchase, Letting and Hiring, &c., a precise definition, interpretation, or presumption, which will be held to be valid in all cases where there is no special contract to the contrary; or again (4) certain kinds of business may be undertaken by the State, though at the same time it may remain open to private individuals or joint-stock companies to enter into competition with the governmental agency if they choose. In this latter case the only element of compulsion consists in the coercive levying (by taxation) of funds required for carrying on the business in question: and where the business can be made to pay its own expenses, even this element of coercion vanishes. Which (if any) of these different modes of interference should be adopted in any particular case is a question which cannot be entirely decided by economic considerations; since even where the more intense interference by direct prohibition or command is both cheaper and more effective, a statesman may reasonably decline to employ it from fear of the displeasure and discontent which it is likely to cause; while, again, the probable amount of displeasure and discontent varies greatly with the actual state of custom and opinion in any particular community. But it should be observed that the intensity of different kinds of interference will be very differently estimated, according as we take a political or an economic point of view. Thus, politically speaking, interference is at its minimum, when Government, without any legal prohibition or restriction of private industry, merely prevents its development in a certain direction, by taking some new kind of business---such as the construction and management of railways---entirely into its own bands. But, economically considered, this interference is greater than when Government places private businesses under legal control and regulation; since in the latter case some of the effects---good or bad---of private enterprise are retained, whereas by the former method they are altogether excluded.

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