Charge, by Arthur Seldon, London: Temple Smith, 1977, 224 pp., £3.50.
The Institute of Economic Affairs in London is surely the model of modern free-market educational institutions. In what can only be described as a ferociously unfavorable environment, it has developed a strong position in British intellectual and political life. A good deal of the success of this institution is the result of the work of its editorial director, Arthur Seldon.
In addition to his onerous duties as editorial director, Seldon is an active and prolific writer. Charge is merely the most recent book in his bibliography. The theme is very well stated by its title. Seldon suggests that we charge people for a good many things that are now provided "free." To the professional economist his arguments will not be new, although they are very well stated and in some areas involve applications that have not previously been made. But the main advantage of this book is that it is so well written that you don't have to be a professional economist to read it. It is primarily aimed at an English audience, but Americans will immediately see the application to the American reality.
Seldon argues that, insofar as possible, people should be directly charged for things that they use. He is, of course, aware of limitations. Programs to help the poor can hardly charge the poor for their relief checks, but it is possible to give the poor money and let them make their own decisions about how to spend it. Similarly, although in rather more complicated fashion, there are a number of "public goods" for which individual sale is unlikely to be efficient. Even among the public goods, however, it is frequently possible to control usage by a fee system, and these fees may be large enough to pay a sizeable part or even all of the cost of maintaining the facility. Seldon's discussion of the road system is particularly in point here.
Seldon does not claim that one can charge directly for every single government service. He does, however, argue—and argues very forcefully—that a very large percentage of the things that present-day governments do, could either be left entirely to private markets (perhaps with income supplements for the poor); or, if they are not suitable for private production, at the very least users could be confronted with a price reflecting the cost they inflict on other people by their use.
It is impossible to summarize this book because it is so rich in specific applications. Let us, however, take two examples. The first is a very, very traditional government service: provision of roads. In general in the United States the users of roads are charged for them through the gasoline tax; and somewhat similar institutions exist abroad although, as far as I know, nowhere as well developed as in the United States. This type of charge, however, is relatively crude, since the actual cost of a car on a road varies a good deal depending on the road and the time of day. Seldon takes up some research done about 10 years ago by Vickrey on a more effective charging mechanism. The individual car can be equipped with a very small and inexpensive electronic device that, together with sensors built into the road, would permit a differential charging system. Someone who wishes to drive into New York during the peak congestion period would pay a high price that reflects the injury his presence on the road inflicts on other people who also want to use the road. At 3:00 in the morning, on the other hand, he would be charged only the vanishingly small cost of the wear and tear that his car puts on the street. This improvement would have a very considerable effect in producing more efficient usage of the streets and roads. By making usage more efficient, it would make it unnecessary to have quite such a large and elaborate road system as we need under our present system.
A second example concerns speedboats. In England as in the United States, there are a great many boats on almost all navigable waters. A good many of these boats are kept in the owner's garage on a trailer and are only delivered to the water when actually needed. The natural body of water, of course, is not produced by the government, although in many cases the government has spent a good deal in improving it. Seldon suggests that in those areas where the boats cause an inconvenience either to each other or to people who want to use water for some purpose other than running a speedboat on it, they should be charged. The charge would be on the whole an approximation of the inconvenience they impose on others. This would surely lead to more efficient use and reduce what is to many people a nuisance.
But these are merely samples. The book will repay reading either by the professional or by the interested private citizen.
This article originally appeared in print under the headline "Charge".