Friedman’s Four Classifications of Spending

Milton Friedman was no Austrian, but he was certainly right on a few things.  One of my favorite concepts of his was the four different methods of spending money.  I don’t have a lot to say about this, I’m just throwing it up here mainly so I can reference it later, because it comes up fairly often in debates with statists.

1.  You spend your own money on yourself.  In this case, you have a clear interest to ensure the money is spent wisely, and that you obtain fair value for it.

2.  You can spend your own money on someone else.  In this case, you still have an interest to economize, but the odds of you being able to perfectly satisfy the desires of another person are much smaller.  Efficiency is reduced.

3.  You spend someone else’s money on yourself.  In this case, you will still want to maximize the amount of value you get for your money, but you have no particular incentive to minimize the total amount of money spent.  You will likely spend more of someone else’s money than you would if it was your own money.

4.  You spend someone else’s money on someone else.  In this case, you have no incentive at all to keep spending low, nor is it likely that you will spend the money wisely and obtain full value for it.  This is incredibly inefficient.  Note that virtually all government spending falls into this category.

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About Dude Where's My Freedom?

My name's Matt and I love Freedom.
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